The Effect of Institutional Investor Portfolio Diversification on Corporate Diversification

105 Pages Posted: 25 Nov 2020 Last revised: 18 Jun 2022

See all articles by Audra L. Boone

Audra L. Boone

Texas Christian University - M.J. Neeley School of Business; European Corporate Governance Institute (ECGI)

Hursit S. Celil

Peking University - HSBC Business School

Seungjoon Oh

Peking University - HSBC Business School

Srinivasan Selvam

Peking University - HSBC Business School

Date Written: April 5, 2022

Abstract

We examine whether institutional investors’ portfolio diversification affects corporate diversification and related practices. Estimating investor portfolio diversification using their holdings' return characteristics, we find a negative relation between portfolio and corporate diversification that is robust to two quasi-natural experiments. Further, greater diversified ownership is associated with firms' distinctiveness, like undertaking fewer diversifying acquisitions and conducting non-core asset sales. These firms also have greater idiosyncratic risk and lower product market similarity to peers. Diversified blockholder counts, incentive compensation, quasi-indexer ownership, less volatile and non-crisis periods amplify our results. These findings illustrate how ownership structure can reshape the corporate landscape.

Keywords: Institutional Ownership, Indexing, Portfolio Diversification, Corporate Diversification, Product Similarity

JEL Classification: G23, G34, L25

Suggested Citation

Boone, Audra and Celil, Hursit S. and Oh, Seungjoon and Selvam, Srinivasan, The Effect of Institutional Investor Portfolio Diversification on Corporate Diversification (April 5, 2022). Available at SSRN: https://ssrn.com/abstract=3700235 or http://dx.doi.org/10.2139/ssrn.3700235

Audra Boone

Texas Christian University - M.J. Neeley School of Business ( email )

Fort Worth, TX 76129
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Hursit S. Celil

Peking University - HSBC Business School ( email )

University Town
Shenzhen, 518055
China
+8675526033096 (Phone)

Seungjoon Oh

Peking University - HSBC Business School ( email )

Srinivasan Selvam (Contact Author)

Peking University - HSBC Business School ( email )

University Town
Shenzhen, 518055
China

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
206
Abstract Views
999
rank
207,135
PlumX Metrics