Are institutional investors with multiple blockholdings effective monitors?

We examine whether institutions’ monitoring effectiveness is related to the number of their blockholdings. We find that the number of blocks that a firm's large institutions hold is positively associated with forced chief executive officer (CEO) turnover-performance sensitivity, abnormal return...

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Bibliographic Details
Published in:Journal of financial economics 2018-06, Vol.128 (3), p.576-602
Main Authors: Kang, Jun-Koo, Luo, Juan, Na, Hyun Seung
Format: Article
Language:English
Subjects:
Chief executive officers
Corporate governance
Experience
Governance
Institutional investments
Institutional investors
Monitoring
Monitoring systems
Multiple blockholdings
Studies
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Summary:We examine whether institutions’ monitoring effectiveness is related to the number of their blockholdings. We find that the number of blocks that a firm's large institutions hold is positively associated with forced chief executive officer (CEO) turnover-performance sensitivity, abnormal returns around forced CEO turnover announcements and 13D filings, and changes in firm value. These results are particularly evident when institutions have multiple blockholdings in the same industry, when they have activism experience, or when they have long-term blockholdings in their portfolio firms. Our results suggest that information advantages and governance experience obtained from multiple blockholdings are important channels through which institutions perform effective monitoring.
ISSN:0304-405X
1879-2774
DOI:10.1016/j.jfineco.2018.03.005