Institutional Trader Monitoring and Firm Performance

38 Pages Posted: 19 Dec 2011

See all articles by Brandon Chen

Brandon Chen

University of Technology Sydney (UTS)

Peter L. Swan

University of New South Wales (UNSW Sydney; Financial Research Network (FIRN)

Date Written: November 24, 2010


Although recent research show that institutional informed trading can spur CEOs to work harder and reduce agency costs even for firms with dispersed ownership structure, it leaves unaddressed the ultimate impact of informed trading on firm value. This paper provides empirical evidence and finds that firm value indeed increases in institutional trader monitoring. In particular, the results confirm that the positive effect of institutional trader monitoring on firm value outweighs the negative effect of potentially increasing agency costs due to the reduced use of equity-based compensation to CEOs, revealed by Chen and Swan (2010). The results are robust to various measures of performance (stock returns, Tobin’s Q, and ROA) as well as to different specifications dealing with the issue of endogeneity.

Keywords: Wall Street Rule, Institutional investor monitoring, Firm performance, Corporate governance

Suggested Citation

Chen, Brandon and Swan, Peter Lawrence, Institutional Trader Monitoring and Firm Performance (November 24, 2010). Available at SSRN: or

Brandon Chen (Contact Author)

University of Technology Sydney (UTS) ( email )

15 Broadway, Ultimo
PO Box 123
Sydney, NSW 2007

Peter Lawrence Swan

University of New South Wales (UNSW Sydney ( email )

School of Banking and Finance
UNSW Business School
Sydney NSW, NSW 2052
+61 2 9385 5871 (Phone)
+61 2 9385 6347 (Fax)

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Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane


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