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Portfolio Concentration and Firm Performance

Published online by Cambridge University Press:  23 January 2015

Anders Ekholm  and
Benjamin Maury
Anders Ekholm
Affiliation:
anders.ekholm@hanken.fi, Department of Finance and Statistics, Hanken School of Economics, PO Box 479, 00101 Helsinki, Finland.
Benjamin Maury
Affiliation:
benjamin.maury@hanken.fi, Department of Finance and Statistics, Hanken School of Economics, PO Box 479, 00101 Helsinki, Finland.
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Abstract

This paper investigates the relation between shareholders’ portfolio concentration and firm performance. Using data on more than 1.3 million unique shareholders, we create an index that measures how concentrated shareholder portfolios are in each firm. We posit that portfolio concentration will affect incentives when shareholders are resource constrained. We find that average shareholder portfolio concentration is positively related to future operational performance and valuation. We also find that portfolio concentration is positively correlated with abnormal stock returns. Our findings suggest that shareholders with concentrated portfolios are more informed and play a governance role through the stock market.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 49 , Issue 4 , August 2014 , pp. 903 - 931
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2015 

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