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Does Geographic Proximity Matter in Active Monitoring? Evidence from Institutional Blockholder Monitoring of Corporate Governance in the Korean Market

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  • Kaun Y. Lee
  • Chune Young Chung
  • Justin Morscheck

Abstract

We examine institutional blockholders’ active monitoring influence using a proprietary corporate governance score (CGS) provided by the Korea Corporate Governance Service (KCGS). We find that institutional blockholders effectively exert monitoring influence to improve CSG scores of investee firms. The evidence of effective monitoring is particularly evident for domestic institutional blockholders and is strongest in the shareholder rights category of the CSG score. Consistent with domestic blockholders having an informational advantage over their foreign counterparts, the evidence of active monitoring is stronger (weaker) in firms with lower (higher) earnings management (higher information quality) and for firms with lower (higher) stock liquidity. Our robust findings shed light on the specific monitoring role of institutional blockholders in emerging markets, where sound corporate governance is essential to firms’ long-term sustainability.

Suggested Citation

  • Kaun Y. Lee & Chune Young Chung & Justin Morscheck, 2020. "Does Geographic Proximity Matter in Active Monitoring? Evidence from Institutional Blockholder Monitoring of Corporate Governance in the Korean Market," Global Economic Review, Taylor & Francis Journals, vol. 49(2), pages 150-170, April.
    • Handle: RePEc:taf:glecrv:v:49:y:2020:i:2:p:150-170
    DOI: 10.1080/1226508X.2019.1699846
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    Cited by:

    1. Chung, Chune Young & Kim, Hyeik & Wang, Kainan, 2022. "Do domestic or foreign institutional investors matter? The case of firm information asymmetry in Korea," Pacific-Basin Finance Journal, Elsevier, vol. 72(C).

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