When Financial Institutions are Large Shareholder: The Role of Macro Corporate Governance Environments
49 Pages Posted: 2 Oct 2008
Abstract
While financial institutions' aggregate investments have grown substantially across world equity markets, the size of their individual shareholdings, and ultimately their incentive to monitor, can be limited by the free-rider problem, investment regulations and a preference for diversification and liquidity. We compare institutional shareholding patterns across countries and find vast differences in the extent to which institutions are large shareholders. More importantly, we find that after controlling for regulations and characteristics of the institutional investment industry, these variations are determined by macro corporate governance factors such as shareholder protection, law enforcement and corporate disclosure requirements. Our results suggest that strong macro governance environments act to strengthen intervention ability and reduce monitoring costs such that more institutions are encouraged to hold concentrated equity positions. Overall, our results highlight a link between the 'Law and Finance' and 'Institutional Activism' streams of literature.
Keywords: Corporate Governance, Institutional Activism, Law and Finace
JEL Classification: G30, G20
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
A Survey of Corporate Governance
By Andrei Shleifer and Robert W. Vishny
-
The Separation of Ownership and Control in East Asian Corporations
By Stijn Claessens, Simeon Djankov, ...
-
One Share/One Vote and the Market for Corporate Control
By Sanford J. Grossman and Oliver Hart