Blockholder Mutual Fund Participation in Private In-house Meetings: Evidence on Social Bonding and Stock Return Volatility

Abstract

The Shenzhen Stock Exchange (SZSE) in China is unique worldwide in requiring disclosure of the timing, participants, and selected content of private in-house meetings between firm managers and outside investors. We investigate whether these private meetings benefit hosting firms and their major outside institutional investors, blockholder mutual funds (i.e., funds with ownership ≥ 5 percent). Using a large dataset of SZSE firms, we find that blockholder mutual funds have more access to private in-house meetings, and top management is more likely to be present – especially when negative news is disclosed. Further, when blockholder mutual funds attend negative news meetings with top management, they are less likely to sell shares, their investment relationship with the hosting firm lasts longer, and hosting firms experience lower post-meeting stock return volatility. These findings suggest that private in-house meetings are an informative disclosure channel that improves “social bonding” between top management and blockholder mutual funds in ways that benefit both parties.

Keywords: Institutional investors, mutual funds, private in-house meetings, site visits, disclosure, stock volatility, social bonding, trust

JEL Classification: G14, G15, G18, G34, G38, K22, M41, M48