Motivated Monitoring by Institutional Investors and Firm Investment Efficiency

Ward, C.; Yin, C.; Zeng, Y.

doi:10.1111/eufm.12232

Motivated Monitoring by Institutional Investors and Firm Investment Efficiency

Ward, C.; Yin, C.; Zeng, Y.

Authors

C. Ward

C. Yin

Dr Yeqin Zeng yeqin.zeng@durham.ac.uk
Associate Professor

Abstract

We find that motivated monitoring by institutional investors mitigates firm investment inefficiency, estimated by Richardson's (2006) approach. This relation is robust when using the annual reconstitution of the Russell indexes as exogenous shocks to institutional ownership during the period 1995–2015 and after classifying institutional ownership by institution type. We also show that closer monitoring mitigates the problem of both over‐investing free cash flows and under‐investment due to managers’ career concerns. Finally, we document that the effectiveness of the monitoring by institutional investors appears to increase monotonically with respect to the firm's relative importance in their portfolios.

Citation

Ward, C., Yin, C., & Zeng, Y. (2020). Motivated Monitoring by Institutional Investors and Firm Investment Efficiency. European Financial Management, 26(2), 348-385. https://doi.org/10.1111/eufm.12232

Journal Article Type	Article
Acceptance Date	Jun 3, 2019
Online Publication Date	Aug 7, 2019
Publication Date	Mar 31, 2020
Deposit Date	Jun 14, 2019
Publicly Available Date	Aug 7, 2021
Journal	European Financial Management
Print ISSN	1354-7798
Electronic ISSN	1468-036X
Publisher	Wiley
Peer Reviewed	Peer Reviewed
Volume	26
Issue	2
Pages	348-385
DOI	https://doi.org/10.1111/eufm.12232
Public URL	https://durham-repository.worktribe.com/output/1328866

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Copyright Statement
This is the accepted version of the following article: Ward, C., Yin, C. & Zeng, Y. (2020). Motivated Monitoring by Institutional Investors and Firm Investment Efficiency. European Financial Management 26(2): 348-385 which has been published in final form at https://doi.org/10.1111/eufm.12232. This article may be used for non-commercial purposes in accordance With Wiley Terms and Conditions for self-archiving.