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• W2898868227 abstract "This thesis attempts to deepen our understanding of the role of institutional investors incorporate governance. While numerous studies have examined the effectiveness ofinstitutional investors’ monitoring and have taken into account the heterogeneity of thevarious types of such investors, there has been less research on differences in theirportfolios and specifically on the incentives that they may have to monitor individualcompanies. Due to resource constraints, it would be logical for institutional investors toconcentrate their monitoring efforts on a subset of the firms held in their portfolios thatoffer the greatest likelihood of obtaining benefits that exceed the cost of monitoring. Thisthesis attempts to identify whether such a policy is actually adopted by institutionalinvestors and assesses the outcome of such attention.The first factor that might plausibly influence investors’ monitoring incentives is theweighting of a firm in their portfolio. When a firm accounts for a greater weighting in theinvestor’s portfolio, one might reasonably argue that the benefits of monitoring might beexpected to exceed the cost. Therefore, the incentive to monitor that firm would bestronger. The first empirical study in this thesis investigates whether firms that tend to beheavily represented in institutional portfolios exhibit more investment efficiency. Thestudy reveals that corporations do significantly improve the efficiency of their investmentdecisions when their shares represent a greater proportion of the holdings of institutionalportfolios. Monitoring may mitigate the tendency of management to focus on their owncareer aims and build empires rather than enhancing shareholder value. The secondempirical study investigates the market valuation of the firm’s cash holdings. Historically, it has been suggested that an increase in cash holding is associated with poorerperformance by the firm. This study shows that this effect changes when one takes intoaccount the influence of institutional investors as a result of their monitoring. Itdemonstrates that the presence of motivated institutional investors appears tosignificantly increase the marginal value of cash holdings of a firm. It is shown that whena firm accounts for a greater weighting in an institutional portfolio, the adverse effect ofhigh levels of cash held by the firm on its operational performance largely disappears – aresult that would be consistent with investors monitoring those firms more effectively.The final empirical chapter studies the relation between investors’ horizons and themonitoring incentive. Since the monitoring cost is borne in the present while anyconsequent pay-off would occur in the future, institutional investors’ monitoringincentives are likely to be positively related to the investment horizon. I find that the longtermholdings of different types of investors could all improve firm performance. Theeffect is persistent and long-lasting. These findings support the hypothesis thatmonitoring attention by institutional investors is related to their holding horizon." @default.
• W2898868227 created "2018-11-09" @default.
• W2898868227 creator A5075758522 @default.
• W2898868227 date "2018-01-01" @default.
• W2898868227 modified "2023-09-27" @default.
• W2898868227 title "Institutional investors: their incentives for monitoring companies and the effect on corporate governance" @default.
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