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Proximity and litigation: Evidence from the geographic location of institutional investors

Mieszko Mazur, Galla Salganik-Shoshan, Thomas Walker and Jun Wang

Journal of Financial Markets, 2018, vol. 40, issue C, 60-74

Abstract: In this paper, we examine how the geographic distance between a firm and its largest institutional investors affects the firm's litigation risk. We show that geographic proximity between the firm and its largest institutional shareholders reduces the incidence of a lawsuit. Moreover, we find that geographic proximity affects the relationship between institutional investors' ownership and the litigation risk of their portfolio firms. These findings indicate that geographically proximate investors may have an informational advantage over investors who are located far away, and that this advantage manifests itself in more effective monitoring of firm management, and consequently, in lower litigation risk.

Keywords: Litigation; Institutional investors; Geography; Monitoring; Corporate governance (search for similar items in EconPapers)
JEL-codes: G23 G34 K41 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:finmar:v:40:y:2018:i:c:p:60-74