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Institutional investor monitoring motivation and the marginal value of cash

Ward, Charles; Yin, Chao; Zeng, Yeqin

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Authors

Charles Ward

Chao Yin



Abstract

This paper examines whether the motivation of institutional investors in monitoring a firm is positively related to the relative importance of the firm's stock in their portfolios. We find that greater motivated monitoring institutional ownership is associated with a higher marginal value of corporate cash holdings, which cannot be explained by other corporate governance measures and institution types. Further, we find that the economic effect of institutional monitoring on the marginal value of cash falls with decreasing institutions' monitoring motivation. Based on these findings, we construct a monitoring motivation-weighted institutional ownership measure and document a positive relation between it and the marginal value of cash. Our results are robust after controlling for the endogeneity of institutional ownership, three cash regimes, firm size, and changes in US public firms over time.

Citation

Ward, C., Yin, C., & Zeng, Y. (2018). Institutional investor monitoring motivation and the marginal value of cash. Journal of Corporate Finance, 48, 49-75. https://doi.org/10.1016/j.jcorpfin.2017.10.017

Journal Article Type Article
Acceptance Date Oct 27, 2017
Online Publication Date Nov 2, 2017
Publication Date Feb 1, 2018
Deposit Date Sep 21, 2018
Publicly Available Date May 2, 2019
Journal Journal of Corporate Finance
Print ISSN 0929-1199
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 48
Pages 49-75
DOI https://doi.org/10.1016/j.jcorpfin.2017.10.017
Public URL https://durham-repository.worktribe.com/output/1348115
Related Public URLs http://centaur.reading.ac.uk/73415/

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