Is Blockholder Diversity Detrimental?

Abstract

We find, in three settings, that diversity among large shareholders (i.e., blockholders) is detrimental to firm performance. Specifically, we find that(1) disclosure of an increase in block diversity around an exogenously predetermined date is followed by a negative market reaction, while disclosure of a decrease in block diversity, due to (2) an individual’s death or retirement or (3) the 2003 mutual fund scandal, is followed by an increase in firm performance. We also show that firms held by a heterogeneous blockholder base consistently perform worse than firms held by homogeneous blockholders, and experience disagreement more frequently.

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

JEL Classification: G3