Negotiated Block Trades and Corporate Control




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    • University of Rochester, William E. Simon Graduate School of Business Administration and Boston College, Wallace E. Carroll School of Management, respectively. This research has been partially supported by the Managerial Economics Research Center at the Simon School. We would like to thank Hesna Genay and Meeta Kothare for research assistance. We have benefited from the suggestions of Raymond Ball, James Brickley, Robert Comment, Gregg Jarrell, David Mayers, Ronald Schmidt, Dennis Sheehan, Clifford Smith, and Michael Weisbach.


We identify negotiated trades of large-percentage blocks of stock as corporate control transactions. When a block trades and the firm is not fully acquired, cumulative abnormal returns average 5.6%, and 33% of the chief executives are replaced within a year. Stock-price increases are larger when control passes to the new blockholder, when management does not resist the blockholder's effort to influence corporate policy, and when the block purchaser eventually fully acquires the firm. These findings suggest that the specific skills and expertise of blockholders, and not just the concentration of ownership, are important determinants of firm value.