Do UK Institutional Shareholders Monitor their Investee Firms?
AbstractAs 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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Bibliographic InfoPaper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2008-38.
Date of creation: 2008
Date of revision:
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Web page: http://center.uvt.nl
Insider trading; institutional investor monitoring; shareholder activism; corporate governance; ownership and control;
Other versions of this item:
- 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.
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
- 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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