Motivated monitoring by institutional investors and firm investment efficiency

Ward, C., Yin, C. and Zeng, Y. (2020) Motivated monitoring by institutional investors and firm investment efficiency. European Financial Management, 26 (2). pp. 348-385. ISSN 1468-036X doi: 10.1111/eufm.12232

Abstract/Summary

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.

Item Type	Article
URI	https://reading-clone.eprints-hosting.org/id/eprint/84305
Identification Number/DOI	10.1111/eufm.12232
Refereed	Yes
Divisions	Henley Business School > Finance and Accounting
Publisher	Wiley
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