The Value of Institutional Investor Monitoring: The Empirical Evidence
Bernard S. Black
Northwestern University - Pritzker School of Law; Northwestern University - Kellogg School of Management; European Corporate Governance Institute (ECGI)
UCLA Law Review, Vol. 39, pp. 895-939, 1992
This Article collects the available evidence as of 1992 on the potential value of institutional investor monitoring of large U.S. public companies. The evidence is suggestive rather than conclusive. There are a number of systematic shortfalls in the functioning of large public firms. Institutions could potentially address some of these shortfalls. The institutions are best able to address issues that are common to a number of companies, and less able to respond to company specific failures. Large institutions do little monitoring, but there is some evidence that other large outside shareholders can engage in valuable monitoring, and little evidence that greater shareholder oversight is harmful. Monitoring by financial institutions in Germany, Japan, and Great Britain appears to have significant benefits.
In a companion paper, Agents Watching Agents: The Promise of Institutional Investor Voice, UCLA Law Review, vol. 39, pp. 811-893 (1992), http://ssrn.com/abstract=1132082, I survey the empirical evidence on the value of large shareholder oversight of managers.
Number of Pages in PDF File: 45
Date posted: May 14, 2008 ; Last revised: August 6, 2008