[We analyze the effects of heterogeneity across large shareholders, using a new blockholderfirm panel dataset in which we can track all unique blockholders among large public firms in the United States. We find statistically significant and economically important blockholder fixed effects in investment, financial, and executive compensation policies. We also find blockholder fixed effects in firm performance measures, and differences in corporate policies are systematically related to differences in firm performance. We study potential sources of the heterogeneity and find that blockholders with a larger block size, board membership, direct management involvement, or with a single decision maker are associated with larger effects on corporate policies and firm performance.]

We find that differences in individuals' prenatal environments explain heterogeneity in financial decisions later in life. An exogenous increase in exposure to prenatal testosterone is associated with the masculinization of financial behavior, specifically with elevated risk taking and trading in adulthood. We also examine birth weight. Those with higher birth weight are more likely to participate in the stock market, whereas those with lower birth weight tend to prefer portfolios with higher volatility and skewness, consistent with compensatory behavior. Our results contribute to the understanding of how the prenatal environment shapes an individual's behavior in financial markets later in life.

Agency Costs of Controlling Minority Shareholders (coauthored with Henrik Cronqvist) estimates the agency costs of controlling minority shareholders (CMSs) using a panel of Swedish listed firms. CMSs are owners who have a control stake of the firm’s votes while owning only a minority fraction of the firm’s equity. The study documents that families in control are almost exclusively CMSs through an extensive use of dual-class shares. The results show that increased ownership of votes by a controlling owner is associated with an economically and statistically significant decrease in firm value, but that the decrease in firm value is significantly larger for firms with family CMSs than for firms with financial institutions or corporations in control. This indicates that the agency costs of family CMSs are larger than the agency costs of other controlling owners.Family Ownership, Control Considerations, and Corporate Financing Decisions: An Empirical Analysis analyzes the relation between concentrated family control and firms’ choice of capital structure for a panel of Swedish listed firms. The results suggest that the capital structure choices made by firms with families in control are influenced by the controlling families’ desire to protect their control, and that the resulting capital structures are likely to increase the agency costs of family control. The Choice between Rights Offerings and Private Equity Placements (coauthored with Henrik Cronqvist) analyzes the determinants of the choice between rights offerings and private equity placements using a sample of rights offerings and private placements made by listed Swedish firms. The results indicate that control considerations explain why firms make uninsured rights offerings. The evidence also suggest that private placements, and to some extent underwritten rights offerings, are made by potentially undervalued firms in order to overcome underinvestment problems resulting from asymmetric information about firm value. Furthermore, private placements are frequently made in conjunction with the establishment of a product market relationship between purchaser and seller, which is consistent with equity ownership reducing contracting costs in new product market relationships. Why Agency Costs Explain Diversification Discounts (coauthored with Henrik Cronqvist and Peter Hogfeldt) studies diversification within the real estate industry, in which firms can diversify over property types and geographical regions. Similar to previous studies, this essay documents the existence of a diversification discount. However, the major cause of the diversification discount is not diversification per se but anticipated costs due to rent dissipation in future diversifying acquisitions. Firms expected to pursue non-focusing strategies do indeed diversify more, are valued ex ante at a 20% discount over firms anticipated to follow a focusing strategy, and are predominantly family controlled. The ex ante diversification discount is, therefore, a measure of agency costs. The Difference in Acquirer Returns between Takeovers of Public Targets and Takeovers of Private Targets shows, for a sample of Swedish takeovers, that the average acquirer abnormal return is positive and significant when the target firm is privately held but insignificant when the target firm is listed on a stock exchange. These results are robust when controlling for sample selection problems and other variables capable of explaining acquirer returns. The evidence is consistent with greater acquirer bargaining power and resolution of information asymmetries in takeovers of private targets.

Corporate executives managing some of the largest public companies in the U.S. are shaped by their daughters. When a firm’s chief executive officer (CEO) has a daughter, the corporate social responsibility rating (CSR) is about 9.1% higher, compared to a median firm. The results are robust to confronting several sources of endogeneity, e.g., examining first-born CEO daughters and CEO changes. The relation is strongest for diversity, but significant also for broader pro-social practices related to the environment and employee relations. Our study contributes to research on female socialization, heterogeneity in CSR policies, and plausibly exogenous determinants of CEOs’ styles.

For a long list of investment “biases,” including lack of diversification, excessive trading, and the disposition effect, we find that genetic differences explain up to 45% of the remaining variation across individual investors, after controlling for observable individual characteristics. The evidence is consistent with a view that investment biases are manifestations of innate and evolutionary ancient features of human behavior. We find that work experience with finance reduces genetic predispositions to investment biases. Finally, we find that even genetically identical investors, who grew up in the same family environment, often differ substantially in their investment behaviors due to individual-specific experiences or events.

We study changes in chief executive officer (CEO) contracts when firms transition from public ownership with dispersed owners to private ownership with strong principals in the form of private equity sponsors. The most significant changes are that a significant portion of equity grants performance-vests based on prespecified measures and that unvested equity is forfeited by fired CEOs. Private equity sponsors do not reduce base salaries, bonuses, and perks, but redesign contracts away from qualitative measures. They use some subjective performance evaluation, do not use indexed or premium options, and do not condition vesting on relative industry performance. We compare the contracts to predictions from contracting theories, and relate our results to discussions of executive compensation reform.

We develop and test a nested logit model to examine how firms choose between a rights offering and a private equity placement. Family controlled firms avoid issue methods that dilute control benefits or subject them to more monitoring, especially when the family's control margin is small and the wedge between votes and capital is large. Control considerations also affect security design. Private placements reduce contracting and ex post holdup costs in new product market relationships. Finally, firms with higher asymmetric information about firm value tend to involve underwriter certification in a rights offering, and to choose a private placement when information asymmetries are extreme.

We analyze the effects of heterogeneity across large shareholders, using a new blockholder-firm panel dataset in which we can track all unique blockholders among large public firms in the United States. We find statistically significant and economically important blockholder fixed effects in investment, financial, and executive compensation policies. We also find blockholder fixed effects in firm performance measures, and differences in corporate policies are systematically related to differences in firm performance. We study potential sources of the heterogeneity and find that blockholders with a larger block size, board membership, direct management involvement, or with a single decision maker are associated with larger effects on corporate policies and firm performance.

Using data on identical and fraternal twins’ complete financial portfolios, we decompose the cross-sectional variation in investor behavior. We find that a genetic factor explains about one-third of the variance in stock market participation and asset allocation. Family environment has an effect on the behavior of young individuals, but this effect is not long-lasting and disappears as an individual gains experience. Frequent contact among twins results in similar investment behavior beyond a genetic factor. Twins who grew up in different environments still display similar investment behavior. Our interpretation of a genetic component of the decision to invest in the stock market is that there are innate differences in factors affecting effective stock market participation costs. We attribute the genetic component of asset allocation—the relative amount invested in equities and the portfolio volatility—to genetic variation in risk preferences.

Analyzing the savings behavior of a large sample of identical and fraternal twins, we find that genetic differences explain about 33 percent of the variation in savings propensities across individuals. Individuals are born with a persistent genetic predisposition to a specific savings behavior. Parenting contributes to the variation in savings rates among younger individuals, but its effect decays over time. The environment when growing up (e.g., parents’ wealth) moderates genetic effects. Finally, savings behavior is genetically correlated with income growth, smoking, and obesity, suggesting that the genetic component of savings behavior reflects genetic variation in time preferences or self-control.