Corporate Governance and Institutional Ownership

53 Pages Posted: 25 May 2009  

Kee H. Chung

State University of New York at Buffalo - School of Management

Hao Zhang

Rochester Institute of Technology (RIT) - Saunders College of Business

Date Written: May 23, 2009

Abstract

In this study we examine the relation between corporate governance and institutional ownership. Our empirical results show that the fraction of a company’s shares that are held by institutional investors increases with the quality of its governance structure. In a similar vein, we show that the proportion of institutions that hold a firm’s shares increases with its governance quality. Our results are robust to different estimation methods and alternative model specifications. These results are consistent with the conjecture that institutional investors gravitate to stocks of companies with good governance structure to meet fiduciary responsibility as well as to minimize monitoring and exit costs.

Keywords: Corporate governance, Institutional ownership, Fiduciary responsibility, Monitoring costs, Liquidity, Trading costs

JEL Classification: G20, G30

Suggested Citation

Chung, Kee H. and Zhang, Hao, Corporate Governance and Institutional Ownership (May 23, 2009). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming. Available at SSRN: https://ssrn.com/abstract=1409222

Kee H. Chung (Contact Author)

State University of New York at Buffalo - School of Management ( email )

Buffalo, NY 14260
United States
716-645-3262 (Phone)
716-645-3823 (Fax)

HOME PAGE: http://mgt.buffalo.edu/faculty/academic-departments/finance/faculty/kee-chung.html

Hao Zhang

Rochester Institute of Technology (RIT) - Saunders College of Business ( email )

105 Lomb Memorial Dr.
Rochester, NY 14623
United States

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