49 Pages Posted: 21 Nov 2009 Last revised: 20 Apr 2012
Date Written: March 26, 2012
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.
Suggested Citation: Suggested Citation
Chhaochharia, Vidhi and Niessen-Ruenzi, Alexandra and Kumar, Alok, Local Investors and Corporate Governance (March 26, 2012). Journal of Accounting & Economics (JAE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=1509172 or http://dx.doi.org/10.2139/ssrn.1509172