Institutional Investors on Boards: Do They Influence Corporate Finance?

43 Pages Posted: 26 Apr 2015 Last revised: 27 Apr 2015

See all articles by Emma García‐Meca

Emma García‐Meca

Universidad Politécnica de Cartagena

Félix J. López-Iturriaga

University of Valladolid - Department of Financial Economics and Accounting; National Research University Higher School of Economics - International Laboratory of Intangible-driven Economy

Fernando Tejerina Gaite

University of Valladolid

Date Written: April 24, 2015

Abstract

In this paper we examine whether the presence of institutional investors representatives on boards leads to observable differences in corporate finance. We use a panel of 162 quoted Spanish nonfinancial firms from 2004 to 2010. We find that institutional directors have diverse incentives to engage in the corporate governance. Specifically, we find that directors representing pressure-sensitive investors (i.e., banks and insurance companies) prefer lower financial leverage whereas pressure-resistant directors (i.e., mutual funds and pension funds) show no particular preference. In addition, when analyzed separately, we find that directors appointed by banks and insurance firms have different attitudes and that bank representatives on boards increase both the financial leverage and the banking debt, which is consistent with resource dependence theory. We also find risk aversion among directors representing banks: the higher the fraction of shares they own, the more resistant the companies are to both financial leverage and banking debt. Taken together, our results support the broad literature that emphasizes the strategic role of board members in addition to their monitoring role.

Keywords: Boards of directors, institutional investors, corporate finance

Suggested Citation

García-Meca, Emma and Lopez-Iturriaga, Felix Javier and Tejerina Gaite, Fernando, Institutional Investors on Boards: Do They Influence Corporate Finance? (April 24, 2015). Available at SSRN: https://ssrn.com/abstract=2598588 or http://dx.doi.org/10.2139/ssrn.2598588

Emma García-Meca

Universidad Politécnica de Cartagena ( email )

Departamento Economia Financiera y Contabilidad
Cartagena, Murcia 30201
Spain

Felix Javier Lopez-Iturriaga (Contact Author)

University of Valladolid - Department of Financial Economics and Accounting ( email )

Avda. Valle Esgueva 6
47011 Valladolid
Spain
+34 983 184 395 (Phone)
+34 983 183830 (Fax)

HOME PAGE: http://www2.eco.uva.es/flopez

National Research University Higher School of Economics - International Laboratory of Intangible-driven Economy ( email )

Lebedeva,27
Perm, Perm 614070
Russia

Fernando Tejerina Gaite

University of Valladolid ( email )

8 C/Plaza de Santa Cruz
47002 Valladolid, Valladolid 47002
Spain

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