Local Investors and Corporate Governance
University of Miami
University of Mannheim - Department of Finance
University of Miami - School of Business Administration
March 26, 2012
Journal of Accounting & Economics (JAE), Forthcoming
This paper shows that local institutional investors are effective monitors of corporate behavior. Firms with high local ownership have better internal governance and are more profitable. These firms are also less likely to manage their earnings aggressively or backdate options and are less likely to be targets of class action lawsuits. Further, managers of such firms exhibit a lower propensity to engage in "empire building" and are less likely to "lead the quiet life". Examining the local monitoring mechanisms, we find that local institutions are more likely to introduce shareholder proposals, increase CEO turnover, and reduce excess CEO pay.
Number of Pages in PDF File: 49
Date posted: November 21, 2009 ; Last revised: April 20, 2012
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