We examine the influence of multiple blockholders on the ownership-firm value relationship for a comprehensive sample of US firms. Additional blockholders can either form a coalition with or monitor the largest individual blockholder. The choice between these alternatives influences the manner in which ownership affects firm value. Further, the choice between coalition formation and monitoring is influenced by blockholder identity – individual blockholders tend to form a coalition with while corporate blockholders tend to monitor the largest individual blockholder. Even among individual (corporate) blockholders, there is significant variation in the probability of coalition formation (monitoring). Overall, our findings suggest that the ownership-firm value relationship critically depends on the presence and identity of additional blockholders.

Using a comprehensive sample of US firms we show that most of them have multiple blockholders whose presence and ownership stakes lead to a significant difference between ownership and power. This difference matters. First, we find that insider power (ownership) is negatively (positively) related to firm value. Second, we show that outsider power is positively related to firm value. Our direct blockholder-level measure of power explains firm value over and above the explanatory power of firm-level measures used in the literature (such as the number of blockholders and the dispersion of their ownership stakes).

We analyze the influence of the level as well as the change in family ownership on value creation in mergers involving newly public firms. Our findings suggest that acquirers with low levels of family ownership earn lower abnormal returns than do those with high levels of ownership. In addition, families with low ownership in their firm are more likely to use cash as the medium of exchange, thus avoiding dilution and maintaining their control. Further, acquisitions of targets with low levels of family ownership are associated with greater value creation. Our results are consistent with the entrenchment of families at low levels of ownership and a better alignment of their interests with those of minority shareholders at high levels of ownership. Finally, we find that dilution of the family’s ownership, due to the use of stock as the medium of exchange, alters the family’s incentives and thus influences firm value.