Corporate social responsibility and investors with multiple blockholdings: a monitoring capacity perspective

This is the authors' abstract. We don't add key points for this paper.

Prior work shows that institutional investors with multiple blockholdings can be effective monitors of financial performance. I ask whether this conclusion extends to CSR, a governance domain whose informational properties differ sharply from financial performance. Drawing on agency theory, information economics, and organizational learning, I argue that when a firm’s blockholders hold positions across many firms, capacity constraints force them to reallocate scarce monitoring resources away from CSR, a domain of high monitoring complexity. I further predict that this negative effect is amplified by blockholders’ portfolio industry dispersion and exogenous blockholder distraction. Using 22,823 firm-year observations covering 2,877 U.S. listed firms from 1997 to 2017, I find support for these predictions. The effect is concentrated in immaterial CSR dimensions and among active and short-term blockholders, and survives two quasi-experimental identification strategies based on mergers between financial institutions and the reconstitution of Russell indexes. Overall, this study shows that CSR is a domain in which the consequences of multiple blockholdings diverge from those documented elsewhere.