Internalizing governance externalities: The role of institutional cross-ownership

He, Jie (Jack), Jiekun Huang and Shan Zhao

Journal of Financial Economics, 2019, vol. 134, issue 2, 400-418

Abstract: We analyze the role of institutional cross-ownership in internalizing corporate governance externalities using granular mutual fund proxy voting data. Exploiting within-proposal and within-institution variation, we show that an institution's holdings in peer firms are positively associated with the likelihood that the institution votes against management on shareholder-sponsored governance proposals. We further find that high aggregate cross-ownership positively predicts management losing a vote. Overall, our results provide evidence that cross-ownership incentivizes institutional investors to play a more active monitoring role, suggesting that institutional cross-ownership serves as a market-based mechanism to alleviate the inefficiency induced by governance externalities.

Keywords: Corporate governance; Externalities; Cross-ownership; Proxy voting; Institutional investors (search for similar items in EconPapers)
JEL-codes: G23 G32 G34 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (88)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:134:y:2019:i:2:p:400-418

DOI: 10.1016/j.jfineco.2018.07.019

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