Large Shareholder Portfolio Diversification and Voluntary Disclosure

Posted: 28 Jun 2021

See all articles by Herita T. Akamah

Herita T. Akamah

University of Nebraska at Lincoln - School of Accountancy

Sydney Qing Shu

Miami University of Ohio - Department of Accountancy

Date Written: June 14, 2021

Abstract

Although large shareholders have sufficient influence to engage privately with management, extant literature provides inconclusive evidence on the relation between large equity positions and corporate disclosure. This study examines whether large shareholders’ portfolio diversification affects voluntary corporate disclosure. We define diversification as the extent to which investors spread investments among portfolio stocks. We predict that holding a diversified portfolio deters large shareholders from incurring the costs of private information gathering about a portfolio firm. We document that firms provide more voluntary disclosure when their large shareholders hold a more diversified portfolio, consistent with investors relying more on public disclosure about portfolio firms when their portfolio diversification is higher. Evidence from cross-sectional analyses suggests that, as predicted, the positive relation between portfolio diversification and voluntary disclosure is weaker as the net benefit of acquiring private information increases for large shareholders (i.e., when portfolio firms are more connected, have alternative information channels, or are more complex). Overall, our results suggest that diversified large shareholders’ preference for a richer public disclosure environment creates a positive externality of lowering the information costs for external stakeholders without private access to management.

Keywords: large shareholder, portfolio diversification, voluntary disclosure, private information, alternative information channel, firm complexity

Suggested Citation

Akamah, Herita T. and Shu, Sydney Qing, Large Shareholder Portfolio Diversification and Voluntary Disclosure (June 14, 2021). Contemporary Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3868246

Herita T. Akamah (Contact Author)

University of Nebraska at Lincoln - School of Accountancy ( email )

307 College of Business Administration
Lincoln, NE 68588-0488
United States

Sydney Qing Shu

Miami University of Ohio - Department of Accountancy

3094 Farmer School of Business
800 E. High St.
Oxford, OH 45056
United States

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