Geographic Concentration of Institutions, Corporate Governance, and Firm Value

Abstract

We examine the impact of geographic concentration of institutional investors on corporate governance and firm value. We find that firms whose large institutions are closely located to each other experience higher forced CEO turnover-performance sensitivity, more frequent proxy voting against management, higher returns around CEO turnover announcements and Schedule 13D filings, larger increases in Tobin’s q, and greater liquidity. These results are robust to using the introduction of new direct airline routes as an exogenous source of variation in proximity. Our results suggest that geographic concentration of investors increases monitoring effectiveness.

Keywords: Geographic concentration, Corporate governance, Monitoring, Institutional investors, Firm value, CEO turnover, Proxy voting

JEL Classification: G14, G23, G34