Abstract
This paper examines how the presence and identity of both inside and outside blockholders influence a firm’s likelihood of experiencing a stock price crash, an outcome with important implications for investors, market stability, and corporate governance. Using a dataset of 6,695 firm-year observations from publicly traded United States (U.S.) firms, we employ panel regression models to determine whether inside and outside blockholders are associated with differences in firm-level crash risk. The results provide limited evidence that inside blockholders reduce a firm’s likelihood of experiencing a crash, suggesting their monitoring incentives may be constrained by their dual roles as owners and insiders. However, outside blockholders are associated with a significantly lower likelihood of crash risk, suggesting they serve as effective monitors by demanding greater transparency in a firm. Additional tests show that the presence of multiple outside blockholders reduces crash risk, consistent with the idea that diverse monitoring sources enhance governance effectiveness. Our findings emphasize the importance of blockholder identity in ownership structure and offer insights relevant to investors, regulators, and firms seeking to mitigate downside risk.