Monitoring the Monitor: Distracted Institutional Investors and Board Governance

A-Tier
Journal: The Review of Financial Studies
Year: 2020
Volume: 33
Issue: 10
Pages: 4489-4531

Authors (5)

Claire Liu (not in RePEc) Angie Low (not in RePEc) Ronald W Masulis (UNSW Sydney) Le Zhang (not in RePEc) Wei Jiang (not in RePEc)

Score contribution per author:

0.804 = (α=2.01 / 5 authors) × 2.0x A-tier

α: calibrated so average coauthorship-adjusted count equals average raw count

Abstract

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.

Technical Details

RePEc Handle
repec:oup:rfinst:v:33:y:2020:i:10:p:4489-4531.
Journal Field
Finance
Author Count
5
Added to Database
2026-01-25