Distracted Investors under Institutional Cross-Blockholding: Evidence from Corporate Social Responsibility

Abstract

This paper documents a negative effect of institutional cross-blockholding on portfolio firms’ corporate social responsibility (CSR) performance. Our baseline results show that cross-held firms perform worse in CSR than non-cross-held firms do. A quasi-natural experiment based on mergers between institutional blockholders is applied to establish the causality. Evidence from EDGAR search volume and shareholder proposals on socially responsible investment suggests 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 paper finds a distraction effect of institutional cross-ownership, which extends our understanding of this unique ownership structure.