This paper examines long-term block ownership by corporations and performance changes in firms with corporate block owners. We also examine potential reasons for corporate ownership including benefits in product market relationships, alleviation of financing constraints, and board monitoring by corporate owners. We find the largest significant increases in targets ’ stock prices, investment, and operating profitability when ownership is combined with alliances, joint ventures, and other product market relationships between purchasing and target firms, especially in industries with high research and development. Our findings are consistent with the conclusion that block ownership by corporations has significant benefits in product market relationships. NONFINANCIAL CORPORATIONS IN RECENT YEARS have been active purchasers of long-term block equity positions in U.S. firms. Block ownership by corporations is unique relative to block ownership by institutions or individuals because of the possibility that business agreements, alliances, or joint ventures

In this paper we study how industry-specific and institutional factors affect the size of corporations. We find that countries that have better institutional development, as measured by the efficiency of their judicial system, have larger firms. Once we correct for institutional development, there is little evidence that richer countries or countries with better developed capital markets have larger firms. Interaction effects are perhaps of greatest use in discriminating between theories. We find the efficiency of the judicial system has the strongest relationship with firm size in industries with low physical capital intensity, a finding consistent with a broad class of theories emphasizing “Critical Resources ” as central to determining the boundaries of firms.

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Esteban Rossi-Hansberg have given me outstanding advice in how to better express the argument I analyze the implications of a standard model of the firm where I allow heterogeneity in one unobserved component, which I label organizational capital. Under some reasonable assumptions, firms with better organizational capital are larger and have a lower rate of profit both per unit of output and per unit of input. The model, thus, generates a negative relation between size of firms and Tobin’s Q, which I find in the data. When this relation is accounted for, the well-known diversification discount disappears, suggesting that this might When we use a production function as a simple representation of what a firm is, we know that we are trading a great deal of realism for also a great deal of analytical convenience. Also for simplicity, we tend to understate the degree of heterogeneity among firms. Concepts usually forgotten with these abstractions are the so-called organizational capital and business

I develop a theory of outside ownership where such an ownership arrangement mitigates an external finance problem. Part of the gains from outside ownership accrue to asset owners which determines the asset value. The theory provides a context to analyze asset ownership and asset values over project lifecycles. When there are adjustment costs in realizing the full gains from outside ownership, (i) project specific asset values take time to peak in value, and (ii) there is a gradual increase in the outsiders’s share of asset ownership.