Motivated monitoring: The importance of the institutional investment horizon

Yin, Chao; Ward, Charles; Tsolacos, Sotiris

doi:10.1016/j.irfa.2018.08.011

Motivated monitoring: The importance of the institutional investment horizon

Yin, Chao; Ward, Charles; Tsolacos, Sotiris

Authors

Chao Yin

Charles Ward

Sotiris Tsolacos

Abstract

This paper investigates whether institutional investors that hold shares in a firm for a relatively long time affect firm performance. We measure performance by Return on Assets (ROA), Tobin's Q and Earnings Yield and find that long-term ownership has a positive, long-lasting effect on firm performance. We minimize concerns about endogeneity by incorporating random shocks from changes in the constituents of the Russell Index. We further find that the incentive for monitoring firm performance associated with long-term holding is more important than some conventional classifications of investors in improving firm value. Even for investors usually classified as short term, firm performance will be enhanced for those firms in which they hold stocks over longer periods. We also find that a positive link between institutional owners and firm performance does not exist when investors only hold the stock for a short term. Overall, our paper supports the argument that institutional investors' monitoring enhances firm value.

Citation

Yin, C., Ward, C., & Tsolacos, S. (2018). Motivated monitoring: The importance of the institutional investment horizon. International Review of Financial Analysis, 60, 197-212. https://doi.org/10.1016/j.irfa.2018.08.011

Journal Article Type	Article
Acceptance Date	Aug 23, 2018
Online Publication Date	Aug 28, 2018
Publication Date	2018-11
Deposit Date	Jul 27, 2020
Publicly Available Date	Jul 28, 2020
Journal	International Review of Financial Analysis
Print ISSN	1057-5219
Publisher	Elsevier
Peer Reviewed	Peer Reviewed
Volume	60
Pages	197-212
DOI	https://doi.org/10.1016/j.irfa.2018.08.011
Public URL	https://durham-repository.worktribe.com/output/1259766
Related Public URLs	http://centaur.reading.ac.uk/78924/

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http://creativecommons.org/licenses/by-nc-nd/4.0/

Copyright Statement
© 2018 This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/