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Institutional investors' cross-ownership and internal control quality

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  • Zhou, Wei
  • Liu, Baohua
  • Chen, Tao
  • Chen, Yining

Abstract

This study examines whether institutional investors' cross-ownership (IICO) impacts a firm's internal control quality (ICQ). Using a sample of Chinese firms, we find a positive association between IICO and ICQ. The observed relationship strengthens when firms suffer from a higher level of information asymmetry (agency costs). The documented effect remains robust to firm fixed effects, alternative measures of IICO, and alternative samples. As additional analyses show, the IICO impact prevails in every aspect of internal control and only holds for long-term institutional investors. Combined, these findings suggest that institutional cross-owners play a monitoring role in improving internal control systems.

Suggested Citation

  • Zhou, Wei & Liu, Baohua & Chen, Tao & Chen, Yining, 2025. "Institutional investors' cross-ownership and internal control quality," International Review of Financial Analysis, Elsevier, vol. 106(C).
    • Handle: RePEc:eee:finana:v:106:y:2025:i:c:s1057521925005629
    DOI: 10.1016/j.irfa.2025.104475
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