Blockholder networks, information exchange, and M&A performance

This paper examines how institutional investors exchange private information through co-shareholding networks and the implications for corporate acquisition outcomes. Using New York City taxi data, we identify face-to-face interactions among investor pairs and document that co-blockholders are more likely to seek on-site meetings, consistent with an increased exchange of information. Given evidence for an information channel, we construct the broader blockholder network between US institutional investors and show that acquirers held by more centrally positioned institutional investors earn higher announcement returns. The valuation effect is strongest when targets are more opaque and private information is more valuable. Consistent with an advisory channel, the effect only exits among investors with a comparative advantage in exploiting information, and facilitates “hidden gem” acquisitions rather than preventing poor deals. Overall, our findings suggest that co-shareholding networks promote private information flows that translate into superior advice and enhance M&A performance.