Does shareholder diversification enhance firm investment resilience? Evidence from the euro area

Elena Banu, Francesca Vinci and Lea Best

No 3296, Working Paper Series from European Central Bank

Abstract: This paper develops novel firm-level measures of shareholder geographical concentration and examines how elevated home bias in equity holdings affects investment resilience in the euro area. We combine security-level holdings data from the ECB’s Securities Holdings Statistics (SHS-S) with firm-level financial-statement data from Compustat, and document that equity ownership remains strongly concentrated domestically, with limited cross-border diversification within the monetary union. Using a difference-in-differences design around the COVID-19 shock, combined with a propensity score matching approach, we then analyse whether equity home bias shapes firms’ responses to macroeconomic disruptions. Against an average 16% decline in exports among the firms in the sectors most affected by the pandemic, those with more concentrated, home-biased shareholder bases reduced investment by 20% more than their more diversified peers after the shock. The effect operates mainly through weaker equity resilience, with equity declining by 13%, while sales and bank financing remain comparable. Our findings highlight the benefits of deeper cross-border equity integration for corporate resilience. JEL Classification: F36, G32, G15, D22, E44

Keywords: COVID-19 shock; cross-border equity integration; difference-in-differences; firm resilience; macroeconomic shocks; shareholder geographical concentration (search for similar items in EconPapers)
Date: 2026-10
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20263296

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