 Getting on board: The monitoring effect of institutional directorsGeorge J. Jiang and Chang Liu Journal of Corporate Finance, 2021, vol. 67, issue C Abstract: We identify a sample of firms with directors employed by institutional investors and examine the effect of a direct channel of institutional monitoring. Using difference-in-differences tests, we find weak evidence that institutional directors have a positive effect on informational efficiency. More importantly, institutional directors have a significantly positive impact on stock returns over the long run. Further analysis shows that the presence of institutional directors leads to a slight increase of managerial entrenchment. Consistent with the notion that entrenched managers reduce risk-taking, we also find significant decreases in R&D investments and financial leverage, and significant increases in payouts for firms with institutional directors. The findings suggest that aligning with the interest of long-term investors, institutional directors deter firms from pursuing potentially value-decreasing investment projects and influence firms to return value to investors through lower debts and higher payouts, mainly share repurchases. Keywords: Institutional investors; Board of Directors; Institutional monitoring; Informational efficiency; Firm performance; Corporate policies (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:67:y:2021:i:c:s0929119920303096 DOI: 10.1016/j.jcorpfin.2020.101865 Access Statistics for this article Journal of Corporate Finance is currently edited by A. Poulsen and J. Netter More articles in Journal of Corporate Finance from Elsevier |
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