Changes in Block Ownership in the London Stock Exchange

We analyze the time-series distribution of large blockholders and managerial ownership in the UK over the last decade. We find a significant decrease in the size of block ownership of a large number of companies. We show that the increase in firm's size and risk and the decrease in performance explain a large proportion of this change. We also find that the dilution of ownership through new issues rather than sales of stakes are the main reasons for the decrease in management ownership and the holdings of pressure-resistant investors, such as fund managers and pension funds. Overall, our results are consistent with the contractual hypothesis as companies appear to consider ownership by different categories as substitute means of resolving agency conflicts