Do UK Institutional Shareholders Monitor their Investee Firms?

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Do UK Institutional Shareholders Monitor their Investee Firms?

Author Info

Goergen, M.
Renneboog, L.D.R.
Zhang, C. (Tilburg University, Center for Economic Research)

Additional information is available for the following registered author(s):

Luc Renneboog

Abstract

As institutional investors are the largest shareholders in most listed UK firms, one expects them to monitor the firms they invest in. However, there is mounting empirical evidence which suggests that they do not perform any monitoring. This paper provides a new test on whether UK institutional investors engage in monitoring. The test consists of an event study on directors? trades. If institutional shareholders act as monitors, their monitoring activities convey new information about a firm?s future value to other outside shareholders and reduce the informational asymmetry between the managers and the market. As a result, directors? trades convey less information to the market, and the stock price reaction is weaker. However, our results show that institutional shareholders do not have any significant impact on the stock price reaction which stands in marked contrast with the impact that families, individuals and other firms have on stock prices.

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Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2008-38.

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Date of creation: 2008
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Handle: RePEc:dgr:kubcen:200838

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Paper
- Goergen, M. & Renneboog, L.D.R. & Zhang, C., 2008. "Do UK Institutional Shareholders Monitor Their Investee Firms?," Discussion Paper 2008-016, Tilburg University, Tilburg Law and Economic Center.

Find related papers by JEL classification:
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
G39 - Financial Economics - - Corporate Finance and Governance - - - Other

This paper has been announced in the following NEP Reports:

NEP-ALL-2008-04-21 (All new papers)
NEP-CTA-2008-04-21 (Contract Theory & Applications)
NEP-EEC-2008-04-21 (European Economics)
NEP-MST-2008-04-21 (Market Microstructure)

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Gregory, Alan, et al, 1994. "UK Directors' Trading: The Impact of Dealings in Smaller Firms," Economic Journal, Royal Economic Society, vol. 104(422), pages 37-53, January. [Downloadable!] (restricted)
Other versions:
- John Matatko & Alan Gregory & Ian Tonks & Richard Purkis, 1993. "UK Directors Trading: The Impact of Dealings in Smaller Firms," FMG Discussion Papers dp160, Financial Markets Group. [Downloadable!] (restricted)
Faccio, Mara & Lasfer, M. Ameziane, 2000. "Do occupational pension funds monitor companies in which they hold large stakes?," Journal of Corporate Finance, Elsevier, vol. 6(1), pages 71-110, March. [Downloadable!] (restricted)
Alan Gregory & John Matatko & Ian Tonks, 1997. "Detecting Information from Directors' Trades: Signal Definition and Variable Size Effects," Journal of Business Finance & Accounting, Blackwell Publishing, vol. 24(3), pages 309-342. [Downloadable!] (restricted)
Gorton, Gary & Schmid, Frank A., 2000. "Universal banking and the performance of German firms," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 29-80. [Downloadable!] (restricted)
Jana P. Fidrmuc & Marc Goergen & Luc Renneboog, 2006. "Insider Trading, News Releases, and Ownership Concentration," Journal of Finance, American Finance Association, vol. 61(6), pages 2931-2973, December. [Downloadable!] (restricted)
Other versions:
- Fidrmuc, J. & Goergen, M. & Renneboog, L.D.R., 2005. "Insider trading, news releases and ownership concentration," Discussion Paper 25, Tilburg University, Tilburg Law and Economic Center. [Downloadable!]
- Fidrmuc, Jana & Goergen, Marc & Renneboog, L.D.R., 2005. "Insider trading, news releases and ownership concentration," Discussion Paper 97, Tilburg University, Center for Economic Research. [Downloadable!]
Sylvain Friederich & Alan Gregory & John Matatko & Ian Tonks, 2002. "Short-run Returns around the Trades of Corporate Insiders on the London Stock Exchange," European Financial Management, Blackwell Publishing Ltd, vol. 8(1), pages 7-30. [Downloadable!] (restricted)
Goergen, M. & Renneboog, L.D.R., 2000. "Investment policy, internal financing and ownership concentration in the UK," Discussion Paper 116, Tilburg University, Center for Economic Research. [Downloadable!]
Other versions:
- Goergen, Marc & Renneboog, Luc, 2001. "Investment policy, internal financing and ownership concentration in the UK," Journal of Corporate Finance, Elsevier, vol. 7(3), pages 257-284, September. [Downloadable!] (restricted)
Goergen, Marc & Renneboog, Luc & Correia da Silva, Luis, 2005. "When do German firms change their dividends?," Journal of Corporate Finance, Elsevier, vol. 11(1-2), pages 375-399, March. [Downloadable!] (restricted)
Other versions:
- Correia da Silva, L. & Goergen, M. & Renneboog, L.D.R., 2002. "When do German firms change their dividends?," Discussion Paper 56, Tilburg University, Center for Economic Research. [Downloadable!]
Barber, Brad M. & Lyon, John D., 1997. "Detecting long-run abnormal stock returns: The empirical power and specification of test statistics," Journal of Financial Economics, Elsevier, vol. 43(3), pages 341-372, March. [Downloadable!] (restricted)
Franks, Julian R & Mayer, Colin & Renneboog, Luc, 2001. "Who Disciplines Management in Poorly Performing Companies?," CEPR Discussion Papers 2949, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
Other versions:
- Luc Renneboog & Julian Franks & Colin Mayer, 1999. "Who Disciplines Management in Poorly Performing Companies?," OFRC Working Papers Series 1999fe01, Oxford Financial Research Centre. [Downloadable!]
- Franks, Julian & Mayer, Colin & Renneboog, Luc, 2001. "Who Disciplines Management in Poorly Performing Companies?," Journal of Financial Intermediation, Elsevier, vol. 10(3-4), pages 209-248, July. [Downloadable!] (restricted)
Marc Goergen & Luc Renneboog, . "Strong Managers and Passive Institutional Investors in the UK," Working Papers 1999.21, Fondazione Eni Enrico Mattei. [Downloadable!]
Leland, Hayne E, 1992. "Insider Trading: Should It Be Prohibited?," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 859-87, August. [Downloadable!] (restricted)
Other versions:
- Hayne E. Leland., 1990. "Insider Trading: Should It Be Prohibited?," Research Program in Finance Working Papers RPF-195, University of California at Berkeley.

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