Exceed your duty: The substitution effect of minority investor governance on institutional site visits

Using the staggered entry of the China Securities Investor Service Center (ISC) as a minority shareholder across listed firms as a natural experiment, this study investigates the substitution effect of minority investor governance on corporate site visits conducted by financial analysts and institutional investors. We find that ISC's entry as a minority shareholder significantly reduces the frequency of institutional site visits to firms. This result is robust to sensitivity tests including parallel trend analysis, placebo tests, and alternative samples. We further show that the baseline effect is more pronounced when firms operate in higher degree of marketization and social trust institution, as well as when firms have better corporate governance and information environment. Finally, we document the baseline effect has bright-side effects on the information disclosure and transmission, including lower stock price synchronicity, better information disclosure quality, lower discretionary accrual, and less likelihood of financial restatement. Overall, our evidence suggests that the ISC’s minority investor governance effectively substitutes for site visit-based monitoring, driven by improved corporate transparency, rather than institutional investors free-riding on ISC’s role.