Blockholder (shareholder) - Explained
What is a Blockholder of Shares?
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Table of ContentsWhat is a Blockholder of Shares?Why is being a Blockholder Important? Blockholders as Activist Investors Academic Research on Share Blockholders
What is a Blockholder of Shares?
A shareholder that is powerful as a result of the large amount or value of a companys stock or bonds he possesses is a blockholder. Influential shareholders who own exceptionally large amount of a companys stocks and bonds are called blockholders. Usually, an investor that holds approximately 10,000 shares or then than $200,000 is referred to as a blocholder or an institutional investor. However, there is no gauge for the number of stocks or bonds that an investor must hold before he can be called a blockholder.
Why is being a Blockholder Important?
Generally, through constant and informed monitoring of stock trading in the open marker, companies become aware of the number of stocks owned by shareholders. Companies become officially aware of the presence of blockholders among their shareholders through a Form 13D. A Form 13D is filled with the Securities Exchange Commission by the shareholder notifying the commission of the number of stocks they own or when they have a 5% block ownership of the company. The issuance of preferred stocks by companies is motivated by the need to raise additional funds or build a defense mechanism in situations of hostile bidding. Preferred stocks come with some voting rights that shareholders are entitled to when it comes to making important decisions in the company. A shareholder who is blockholder enjoy influential and increased voting rights in the company.
Blockholders as Activist Investors
An investor who has an ownership block that has reached 5% or more of a companys outstanding shares and exercises that interest to control company decision making is an activist investor. Activist investors buy large number of a companys stocks or shares with the goal of lobbying for seats on the companys board or advocating a major change in the company. Through open letter to the management of a company, activist investors make their positions known, they petition for seats on the companys board in order to initiate a change or be a part of the decision making body. Blockholders and activist investors are important in terms of boosting a companys share price trading. Blockholders are however different from activist investors, examples of influential blockholders are Starboard Value, Warren Buffett, among others.
Academic Research on Share Blockholders
- Bankruptcy, boards, banks, and blockholders: Evidence on changes in corporate ownership and control when firms default, Gilson, S. C. (1990). Journal of Financial Economics, 27(2), 355-387.
- A survey of blockholders and corporate control, Holderness, C. (2003).Blockholder trading, market efficiency, and managerial myopia, Edmans, A. (2009). The Journal of Finance, 64(6), 2481-2513.
- Impact of corporate insider, blockholder, and institutional equity ownership on firm risk taking, Wright, P., Ferris, S. P., Sarin, A., & Awasthi, V. (1996). Academy of Management Journal, 39(2), 441-458.
- Blockholder ownership and market liquidity, Heflin, F., & Shaw, K. W. (2000). Journal of Financial and Quantitative Analysis, 35(4), 621-633.
- Governance through trading and intervention: A theory of multiple blockholders, Edmans, A., & Manso, G. (2010). The Review of Financial Studies, 24(7), 2395-2428.
- Blockholder ownership: Effects on firm value in market and control based governance systems, Thomsen, S., Pedersen, T., & Kvist, H. K. (2006). Journal of Corporate finance, 12(2), 246-269.
- Ownership concentration, corporate control activity, and firm value: Evidence from the death of inside blockholders, Slovin, M. B., & Sushka, M. E. (1993). The Journal of Finance, 48(4), 1293-1321.
- Blockholders and corporate governance, Edmans, A. (2014). Annu. Rev. Financ. Econ., 6(1), 23-50.
- Employee stock ownership plans, firm performance, and monitoring by outside blockholders, Park, S., & Song, M. H. (1995). Financial Management, 52-65.
- The international evidence on performance and equity ownership by insiders, blockholders, and institutions, Seifert, B., Gonenc, H., & Wright, J. (2005). Journal of multinational financial management, 15(2), 171-191.
- Blockholder dispersion and firm value, Konijn, S. J., Krussl, R., & Lucas, A. (2011). Journal of Corporate Finance, 17(5), 1330-1339.