Local investors and corporate governance

Vidhi Chhaochharia, Alok Kumar, Alexandra Niessen-Ruenzi

Research output: Contribution to journalArticle

66 Scopus citations

Abstract

This paper shows that local institutional investors are effective monitors of corporate behavior. Firms with high local ownership have better internal governance and are more profitable. These firms are also less likely to manage their earnings aggressively or backdate options and are less likely to be targets of class action lawsuits. Further, managers of such firms exhibit a lower propensity to engage in "empire building" and are less likely to "lead the quiet life". Examining the local monitoring mechanisms, we find that local institutions are more likely to introduce shareholder proposals, increase CEO turnover, and reduce excess CEO pay.

Original languageEnglish (US)
Pages (from-to)42-67
Number of pages26
JournalJournal of Accounting and Economics
Volume54
Issue number1
DOIs
StatePublished - Aug 1 2012

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Keywords

  • Corporate governance
  • Institutional investors
  • Local bias
  • Monitoring
  • Shareholder proximity

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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