Blockholders Diversity: Effect of Polyphony on the Power of Monitoring

53 Pages Posted: 4 Oct 2017 Last revised: 26 Apr 2018

See all articles by Ekaterina Volkova

Ekaterina Volkova

University of Melbourne - Faculty of Business and Economics

Date Written: April 18, 2018

Abstract

Majority of U.S. companies have multiple blockholders which could differ in their characteristics and skills even within one company. Diversity among blockholders within a given firm arguably has a positive and synergistic impact on the firm's value. Alternatively, conflicting objectives and interests may cause diversity to adversely impact company operations. To investigate the impact of blockholder diversity on company value, I construct diversity measures reflecting blockholder heterogeneity in the categories of identity, portfolio size, and investment horizon. To identify the causality channel, I use shocks from blockholder acquisitions of financial firms, as well as unexpected increases in payouts they receive from other positions: I consequently find that block diversity has a significant negative influence on company value and operations. Additional tests indicate a potential explanation for this negative effect of diversity in a lack of agreement among the blockholders regarding the firm’s future direction.

Keywords: Large Shareholders, Blockholders, Governance, Monitoring, Interaction

JEL Classification: G31, G32, G34, G35

Suggested Citation

Volkova, Ekaterina, Blockholders Diversity: Effect of Polyphony on the Power of Monitoring (April 18, 2018). Available at SSRN: https://ssrn.com/abstract=3047469 or http://dx.doi.org/10.2139/ssrn.3047469

Ekaterina Volkova (Contact Author)

University of Melbourne - Faculty of Business and Economics ( email )

Victoria, 3010
Australia

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