Large Shareholders with Diversified Equity Portfolios and Voluntary Disclosure: International Evidence

Abstract

Motivated by a growing interest in the governance role of large shareholders with diversified equity portfolios, we examine the effect of diversified large shareholders on voluntary corporate disclosures. With substantial equity stakes, large shareholders generally have more access to private information about portfolio firms relative to small shareholders. We suggest that diversified portfolios reduce the net benefits of exploiting private information, thereby prompting large shareholders to rely on public disclosures to monitor management. Using a sample of large shareholders worldwide, we document a positive association between large shareholder portfolio diversification and the availability of voluntary disclosures (management forecasts, conference presentations, analyst/investor days). However, this positive association is less evident in countries with weaker information technology infrastructure and in countries with more secretive national culture. Overall, our evidence suggests that diversified large shareholders generate a positive externality of lowering monitoring costs for all stakeholders through enhancing disclosure environment transparency.

Keywords: Large shareholder; portfolio diversification; voluntary disclosure; information technology infrastructure; secrecy culture; investor relations; positive externality