Block Diversity and Governance

70 Pages Posted: 24 Mar 2021 Last revised: 1 Dec 2023

See all articles by Ryan D. Israelsen

Ryan D. Israelsen

Michigan State University - Department of Finance

Miriam Schwartz-Ziv

Hebrew University of Jerusalem - Department of Finance and Banking; ECGI (European Corporate Governance Institute)

James Weston

Rice University - Jesse H. Jones Graduate School of Business

Date Written: May 5, 2022

Abstract

We show that corporate governance practices vary predictably across different types of blockholders. Nonfinancial blockholders are six times as likely to self-identify as active shareholders relative to financial blockholders. Textual analysis of regulatory filings reveals that nonfinancial blocks tend to govern through tailored actions, while financial blocks govern through generic performance-based measures. The market responds positively when nonfinancial blocks enter small, volatile, and illiquid firms where close monitoring is likely to be valuable. Finally, we find that prior studies using the Russell index inclusion discontinuity may falsely attribute governance practices to institutional ownership and may instead capture nonfinancial blockholder governance.

Keywords: Blockholders, Shareholders, Governance, 13D Filings, 13G filings, Textual analysis, Russell discontinuity

JEL Classification: G30, G34, G39, G23

Suggested Citation

Israelsen, Ryan D. and Schwartz-Ziv, Miriam and Weston, James Peter, Block Diversity and Governance (May 5, 2022). European Corporate Governance Institute – Finance Working Paper No. 791/2021, Available at SSRN: https://ssrn.com/abstract=3810532 or http://dx.doi.org/10.2139/ssrn.3810532

Ryan D. Israelsen

Michigan State University - Department of Finance ( email )

315 Eppley Center
East Lansing, MI 48824-1122
United States

Miriam Schwartz-Ziv (Contact Author)

Hebrew University of Jerusalem - Department of Finance and Banking ( email )

Mount Scopus
Jerusalem, 91905
Israel

ECGI (European Corporate Governance Institute) ( email )

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

James Peter Weston

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005
United States
713-348-4480 (Phone)
713-348-6331 (Fax)

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