Motivated monitoring by institutional investors and firm investment efficiency

Charles Ward, Chao Yin and Yeqin Zeng

European Financial Management, 2020, vol. 26, issue 2, 348-385

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.

Date: 2020
References: Add references at CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
https://doi.org/10.1111/eufm.12232

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:eufman:v:26:y:2020:i:2:p:348-385

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=1354-7798

Access Statistics for this article

European Financial Management is currently edited by John Doukas

More articles in European Financial Management from European Financial Management Association Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().