The social cost of investor distraction: evidence from institutional cross-blockholding

• Main Authors: Astvansh, Vivek, Chen, Tao, Qu, Jimmy Chengyuan
• Other Authors: Nanyang Business School
• Format: Article
• Language: English
• Published: 2024
• Subjects: Business and Management; Health facilities; Industry
• Online Access: https://hdl.handle.net/10356/173741
• Institution: Nanyang Technological University

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.