Do Exogenous Changes in Passive Institutional Ownership Affect Corporate Governance and Firm Value?
53 Pages Posted: 20 Nov 2012 Last revised: 18 Jul 2016
Date Written: June 30, 2016
We investigate whether corporations and their executives react to an exogenous change in passive institutional ownership and alter their corporate governance structure. We find that exogenous increases in passive ownership lead to increases in CEO power and fewer new independent director appointments. Consistent with these changes not being beneficial for shareholders, we observe negative announcement returns to the appointments of new independent directors. We also show that firms carry out worse mergers and acquisitions after exogenous increases in passive ownership. These results suggest that the changed ownership structure causes higher agency costs.
Keywords: Corporate Governance; Institutional Ownership; Monitoring; Index Reconstitutions
JEL Classification: G34, G23, G32
Suggested Citation: Suggested Citation