Networked ownership: How large institutional investors influence corporate behaviour and outcomes

Abstract

This thesis explores how common blockholder networks – formed when institutional blockholders simultaneously hold at least 5% of multiple firms within or across industries – relate to firms’ outcomes, including information asymmetry, managerial tunnelling, and ESG performance. As institutional investors diversify their holdings across hundreds of firms, their focus may shift from maximising individual firm value to optimising portfolio-wide outcomes, potentially altering how firms are monitored and managed. To investigate this, we model a network where nodes represent US public firms and links indicate common blockholders. Our results show that highly central firms, those with more ownership ties, are associated with: (1) a narrower bid–ask spread, reflecting increased demand for public information that improves transparency. Because public information is more accessible and less costly than private information, this demand may reflect a strategic shift from private to public information as institutional investors balance costs and benefits; (2) they are also associated with greater tunnelling activity. Consistent with the idea that common blockholders may, at times, tolerate value transfers across firms when these serve broader portfolio interest, and (3) they are also associated with stronger ESG performance, reflecting efforts to manage systematic ESG risk through media-driven governance. This thesis makes three key contributions. It suggests that while common blockholder networks are associated with reduced information asymmetry, they may also be linked to weaker firm-level accountability, as investors balance oversight across broader portfolios. From this perspective, tunnelling can be viewed not solely as a governance failure, but as a strategic redistribution of resources aimed at stabilising the network. Second, the analysis highlights the potential strategic role of network centrality. Firms occupying more central positions in blockholder networks tend to exhibit patterns suggesting that network position may shape how governance and monitoring priorities are allocated. Third, the thesis shows that common blockholders may prioritise ESG improvements in centrally positioned firms, where extensive ownership ties provide leverage to influence broader network behaviour and mitigate systematic or reputational ESG risks across the portfolio.