Non-blockholder dissatisfaction and firm performance volatility: A groupthink perspective

Jeong-Bon Kim, Johan Maharjan and Yijiang Zhao

Journal of Financial Stability, 2025, vol. 80, issue C

Abstract: Social psychology research suggests that management groups under greater external pressure are more prone to groupthink (i.e., a tendency to reach premature consensus), leading to greater performance volatility. To isolate the group dynamics channel, we focus on the pressure management faces from largely uninformed and dissatisfied non-blockholders. Consistent with the groupthink view, we find that non-blockholder dissatisfaction is positively associated with performance volatility, which is further corroborated by tests addressing omitted variable bias and reverse causality. In addition, the baseline relationship is stronger in firms with greater interaction among directors, more powerful CEOs, and less diverse boards. Our findings suggest that non-blockholder dissatisfaction heightens performance volatility by exacerbating groupthink.

Keywords: Non-blockholder dissatisfaction; Lack of private information; Groupthink; External pressure; Performance volatility (search for similar items in EconPapers)
JEL-codes: G30 G32 G34 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:80:y:2025:i:c:s1572308925000853

DOI: 10.1016/j.jfs.2025.101456

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