New outside blockholders, performance and governance in Germany

Abstract

In this paper we examine stock price reactions to announcements of large block purchases with German targets. We can show that the formation of new outside blocks leads to significant value creation for target shareholders, regardless the acquirer‟s intention. Splitting the sample by acquirer intention indicates that activist and strategic blocks entail significantly higher abnormal returns than purely financial blocks. The positive effect of activist block purchases still persists when we control for other block- and target-specific factors in cross-section. We do not find a significant relation between incumbent ownership structure and announcement effects, sustaining the recent evidence that existing large blockholders do not necessarily play a significant role in disciplining management.