Motivated Monitoring by Institutional Investors and Firm Investment Efficiency

Ward, C.; Yin, C.; Zeng, Y.

Abstract

We find that motivated monitoring by institutional investors mitigates firm investment inefficiency, estimated by Richardson's (2006) approach. This relation is robust when using the annual reconstitution of the Russell indexes as exogenous shocks to institutional ownership during the period 1995–2015 and after classifying institutional ownership by institution type. We also show that closer monitoring mitigates the problem of both over‐investing free cash flows and under‐investment due to managers’ career concerns. Finally, we document that the effectiveness of the monitoring by institutional investors appears to increase monotonically with respect to the firm's relative importance in their portfolios.

Citation

Ward, C., Yin, C., & Zeng, Y. (2020). Motivated Monitoring by Institutional Investors and Firm Investment Efficiency. European Financial Management, 26(2), 348-385. https://doi.org/10.1111/eufm.12232

• Journal Article Type: Article
• Acceptance Date: Jun 3, 2019
• Online Publication Date: Aug 7, 2019
• Publication Date: Mar 31, 2020
• Deposit Date: Jun 14, 2019
• Publicly Available Date: Aug 7, 2021
• Journal: European Financial Management
• Print ISSN: 1354-7798
• Electronic ISSN: 1468-036X
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 26
• Issue: 2
• Pages: 348-385
• DOI: https://doi.org/10.1111/eufm.12232
• Public URL: https://durham-repository.worktribe.com/output/1328866