Social Norms and Stock Lending

Abstract

We examine how social norms measured by religiosity influence institutional investors in the stock lending market. We find that firms with higher average local religiosity of their block institutional investors are associated with higher utilization rates, lower supply, but not higher demand of lendable shares. Such firms have higher stock lending fees and likelihoods of becoming special. A higher short interest, when coupled with higher blockholder religiosity, is a stronger predictor of lower stock returns. Our findings suggest that the social norms of institutional investors act as an origin for limits to arbitrage that impede market efficiency through stock lending.

Keywords

Tags of Social Finance