The social cost of investor distraction: evidence from institutional cross-blockholding
Institutional investors routinely hold blocks of stocks in multiple firms within an industry. While such cross-blockholding boosts a portfolio firm's financial performance, could it distract investors from attending to firm activities in a nonfinancial domain, hurting its performance in that do...
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| Main Authors: | , , |
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| Other Authors: | |
| Format: | Article |
| Language: | English |
| Published: |
2024
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| Subjects: | |
| Online Access: | https://hdl.handle.net/10356/173741 |
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| Institution: | Nanyang Technological University |
| Language: | English |
| Summary: | Institutional investors routinely hold blocks of stocks in multiple firms within an industry. While such cross-blockholding boosts a portfolio firm's financial performance, could it distract investors from attending to firm activities in a nonfinancial domain, hurting its performance in that domain? The authors answer this question in the context of corporate social responsibility (CSR). They first document that cross-held firms perform worse on social responsibility than non-cross-held firms do. A quasi-natural experiment based on mergers between institutional blockholders helps establish causality. Next and as their primary contribution, the authors demonstrate investor distraction as the mechanism. Using two proxies of distraction-EDGAR search volume and shareholder proposals on socially responsible investment-they show that the negative impact of institutional cross-blockholding on CSR mainly comes from investor distraction when investors hold multiple blocks simultaneously. By highlighting the social cost of institutional cross-blockholding, this article finds a distraction effect of institutional cross-ownership, which extends our understanding of this unique ownership structure. |
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