Monitoring the Monitor: Distracted Institutional Investors and Board Governance

• 成果类型: Article
• 署名作者: Liu, Claire; Low, Angie; Masulis, Ronald W.; Zhang, Le
• 署名单位: University of Technology Sydney; Nanyang Technological University; University of New South Wales Sydney; Australian National University
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhaa014
• 发表日期: 2020
• 页码: 4489
• 关键词: independent directors evidence; corporate governance; SHAREHOLDER ACTIVISM; firm performance; OWNERSHIP; fund; incentives; mechanisms; PROPOSALS; attention

摘要

Boards are crucial to shareholder wealth. Yet little is known about how shareholder oversight affects director incentives. Using exogenous shocks to institutional investor portfolios, we find that institutional investor distraction weakens board oversight. Distracted institutions are less likely to discipline ineffective directors with negative votes. Consequently, independent directors face weaker monitoring incentives and exhibit poor board performance; ineffective independent directors are also more frequently appointed. Moreover, we find that the adverse effects of investor distraction on various corporate governance outcomes are stronger among firms with problematic directors. Our findings suggest that institutional investor monitoring creates important director incentives to monitor.