The Information Advantage of Industry Common Blockholders and Its Stabilizing Effect on Stock Price Crash Risk

46 Pages Posted: 6 Jul 2021 Last revised: 9 May 2022

See all articles by Qingyuan Li

Qingyuan Li

School of Economics and Management - School of Economics and Management

Xiaoran Ni

Xiamen University - Wang Yanan Institute for Studies in Economics (WISE); Xiamen University - School of Economics

P. Eric Yeung

Cornell University - Samuel Curtis Johnson Graduate School of Management

David Yin

Miami University of Ohio

Date Written: May 7, 2022

Abstract

Blockholding multiple firms within an industry generates an information advantage for institutional investors, who can better differentiate between the industry-wide and firm-specific nature of bad news released by peer firms and avoid selling on false spillover signals (i.e., “smart exit”). Empirically, we document that industry common ownership reduces future firm-level stock price crash risk, which is in sharp contrast with the positive effect of total institutional ownership on stock price crash risk. Our results are best explained by the attenuated spillover from industry peer firms’ firm-specific bad news, as opposed to the monitoring effect that reduces the focal firm’s hoarding of bad news. Our results suggest that the presence of industry common owners provides a stabilizing effect against stock price contagion.

Keywords: Institutional Investor; Blockholder; Common Ownership; Stock Price Crash Risk; Contagion

JEL Classification: G12, G14, G34, M41

Suggested Citation

Li, Qingyuan and Ni, Xiaoran and Yeung, P. Eric and Yin, David, The Information Advantage of Industry Common Blockholders and Its Stabilizing Effect on Stock Price Crash Risk (May 7, 2022). Available at SSRN: https://ssrn.com/abstract=3871539 or http://dx.doi.org/10.2139/ssrn.3871539

Qingyuan Li

School of Economics and Management - School of Economics and Management ( email )

Wu Han, Hu-Bai 430072
China

Xiaoran Ni (Contact Author)

Xiamen University - Wang Yanan Institute for Studies in Economics (WISE) ( email )

D 204, Economics Building
Xiamen, Fujian 361005
China

Xiamen University - School of Economics ( email )

China

P. Eric Yeung

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

David Yin

Miami University of Ohio ( email )

Oxford, OH 45056
United States

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