Block Diversity and Governance
Prof. James Weston
Harmon Whittington Professor of Finance
Jones Graduate School of Business
Rice University
We demonstrate that corporate governance varies by the type of blockholder: nonfinancial blockholders are six times more likely to self-identify as active shareholders relative to financial blockholders. Textual analysis of regulatory filings reveal that nonfinancial blocks tend to govern through tailored actions, while financial blocks tend to govern generically by following generic performance measures. Correspondingly, when firms for which close monitoring is likely to be valuable (i.e., small, volatile, and illiquid firms) are matched to a non-financial blockholder (i.e., one that typically closely monitors), the market responds especially positively.