Is Blockholder Diversity Detrimental?

Abstract

We find that blockholder diversity, i.e., the firm shareholder base including several different types of blocks, is detrimental to firm performance. We show that lagged disclosure, on exogenous predetermined dates, that reveals an increase in block diversity is followed by a negative market reaction. Firms held by heterogeneous blockholders consistently perform worse than firms held by homogeneous blockholders. Block diversity is particularly detrimental when uncertainty is high. Disagreement among shareholders (e.g., as reflected in the frequency of lawsuits being filed) increases when the blockholder base is diverse. We make our blockholder dataset public for the benefit of other researchers.
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Note: The direct link to the blockholder data we assemble is https://www.dropbox.com/s/pim9z3fyz1x5ag9/blockholders.csv?dl=0 and https://wrds-www.wharton.upenn.edu/pages/get-data/contributed-data-forms/blockholders-schwartz-ziv-volkova/ , and the codes for constructing the data are available at this link: https://github.com/volkovacodes/Block_Codes.

Keywords: Blockholders, Blocks, Block diversity, Financial performance, Lawsuits, Shareholder Votes

JEL Classification: G3