Although these issues have been analyzed by legal scholars since Andrew Berle and
Gardiner Means in 1932, no systematic empirical evidence has been collected.
We investigate the validity of this belief, as well as broader implications of the
law on large-block trades, by analyzing 106 trades of at least 5% of common stock
of exchange-listed firms between 1978 and 1982. We find that, when block sellers
receive premium, stock prices typically increase but not to the price per share received
by the blockholders. We argue that this tension is resolved by assigning a different
set of rights and obligations to large-block shareholders when they act as managers.