Portfolio Concentration and Firm Performance
62 Pages Posted: 17 Mar 2010 Last revised: 26 Jan 2015
Date Written: March 1, 2013
This paper investigates the relation between shareholders’ portfolio concentration and firm performance. Using data on more than 1.3 million unique shareholders, we create an index that measures how concentrated shareholder portfolios are in each firm. We posit that portfolio concentration will affect incentives when shareholders are resource constrained. We find that average shareholder portfolio concentration is significantly positively related to future operational performance and valuation. We also find that portfolio concentration is positively correlated with abnormal stock returns. Our findings suggest that shareholders with concentrated portfolios are more informed and play a governance role through the stock market.
Keywords: portfolio concentration, ownership concentration, governance through the stock market, profitability, valuation, stock returns
JEL Classification: G3
Suggested Citation: Suggested Citation