Local Investors and Corporate Governance

49 Pages Posted: 21 Nov 2009 Last revised: 20 Apr 2012

Vidhi Chhaochharia

University of Miami

Alexandra Niessen-Ruenzi

University of Mannheim - Department of Finance

Alok Kumar

University of Miami - School of Business Administration

Date Written: March 26, 2012

Abstract

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

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

Vidhi Chhaochharia

University of Miami ( email )

514 Jenkins Building
Miami, FL 33124
United States

Alexandra Niessen-Ruenzi

University of Mannheim - Department of Finance ( email )

Mannheim, 68131
Germany

Alok Kumar (Contact Author)

University of Miami - School of Business Administration ( email )

514 Jenkins Building
Department of Finance
Coral Gables, FL 33124-6552
United States
305-284-1882 (Phone)

HOME PAGE: http://moya.bus.miami.edu/~akumar

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