Is Blockholder Diversity Detrimental?

Abstract

We find that, overall, blockholder diversity, i.e., the firm shareholder base including several different types of blocks, is detrimental to firm performance. We show that lagged disclosure, on exogenous predetermined dates, that reveals an increase in block diversity is followed by a negative market reaction. Firms held by heterogeneous blockholders consistently perform worse than firms held by homogeneous blockholders. Block diversity is particularly detrimental when uncertainty is high. Disagreement among shareholders (e.g., as reflected in the frequency of lawsuits being filed) increases when the blockholder base is diverse. We make our blockholder data set public for the benefit of other researchers. This paper was accepted by Victoria Ivashina, finance. Funding: This work was supported by the Israel Science Foundation [Grant 264/20], the Faculty of Business and Economics, University of Melbourne [Grant ECR00009FNL], and the Accounting and Finance Association of Australia and New Zealand [Grant 2020-033]. Supplemental Material: The online appendices and data files are available at https://doi.org/10.1287/mnsc.2023.00528 .