Is Blockholder Diversity Detrimental?

Abstract

We find that diversity among large blockholders is detrimental to firm performance. Specifically, we show that lagged disclosure, on exogenous predetermined dates, revealing an increase in block diversity, is followed by a negative market reaction. Similarly, an unexpected decrease in block diversity, due to an individual’s death or retirement, or to the 2003 mutual fund scandal, is followed by an increase in firm performance. Overall, firms held by a heterogeneous blockholder base consistently perform worse than firms held by homogeneous blockholders. Disagreement among shareholders (e.g., as reflected in shareholder votes) increases when the blockholder base is diverse. Data on blockholders (described in this study) can be obtained at: https://www.dropbox.com/s/yp2r7graixxus7r/Blocks.csv?dl=0