Investor behavior and the benefits of direct stock ownership

Bernard, D, Cade, N L and Hodge, F (2018) Investor behavior and the benefits of direct stock ownership. Journal of Accounting Research, 56 (2). pp. 431-466. ISSN 0021-8456

Abstract

Whereas prior research emphasizes the monitoring benefits of concentrated stock ownership, we examine a variety of potential benefits of dispersed ownership for public companies. Using a field experiment to rule out reverse causality, we examine whether a small investment in a company’s stock leads investors to purchase more of the company’s products and adopt other views and preferences that benefit the company. We find little evidence consistent with our hypotheses using frequentist statistics, and Bayesian parameter estimation shows substantial downward belief revision for more optimistic ex ante expectations of the treatment effects for the
average investor. However, we do find that the effects of ownership on product purchase behavior and on regulatory preferences are intuitively stronger for certain subgroups of investors—namely, for investors who are most likely to consume the types of products offered by the company and for investors who are most likely to be politically active, respectively. The results contribute to our understanding of the benefits of dispersed stock ownership and are informative to public company managers and directors.