Local institutional shareholders and corporate hedging policies

Vivian W. Tai, Yi-Hsun Lai and Lin Lin

The North American Journal of Economics and Finance, 2014, vol. 28, issue C, 287-312

Abstract: This paper examines the effectiveness of monitoring function from institutional investors on corporate hedging strategy in Taiwan over the period from 2005 to 2012. The empirical results show that institutional investors are effective monitors of corporate risk management to enhance the probability and extent of hedging. In addition, the monitoring function from institutional investors is effective for mitigating the risk-shifting problem of high leveraged firms. Moreover, local institutional investors play more important role in monitoring distressed firm's magnitude of hedging than foreign institutional investors. These results are robust to the consideration of endogeneity, selection bias, and industrial difference. This is the first empirical evidence in the literature regarding the monitoring effect of institutional investors on risk management strategy from the angle of monitoring costs.

Keywords: Hedging; Risk-shifting; Monitoring; Institutional investors; Shareholder proximity (search for similar items in EconPapers)
JEL-codes: G30 G32 G34 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:28:y:2014:i:c:p:287-312

DOI: 10.1016/j.najef.2014.03.009

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