Does Geographic Proximity Change the Passiveness of Institutional Investors?

41 Pages Posted: 16 May 2015

See all articles by Kiyoung Chang

Kiyoung Chang

University of South Florida Sarasota-Manatee - College of Business

Ying Li

University of Washington, Bothell - Business

Ha-Chin Yi

Texas State University, San Marcos - Department of Finance and Economics

Date Written: May 1, 2015

Abstract

We provide new evidence that highlights the effect of geographic proximity on the role institutional investors play by showing that, while bank trusts are passive with distant firms, they are non-passive with local firms and reduce their risk-taking. We find that concentrated local bank trust ownership is associated with (1) lower future firm equity beta and (2) less uncertain corporate policies. The negative relation between local bank trust ownership and future firm beta is both statistically and economically significant. The results are robust to various tests for endogeneity. This study also explores the channels through which local bank trusts could exert their influence, including their stabilizing function during crisis periods and joining force with local independent directors.

Keywords: institutional investor, bank trust, geography, passiveness, risk

JEL Classification: G30; G23; G32

Suggested Citation

Chang, Kiyoung and Li, Ying and Yi, Ha-Chin, Does Geographic Proximity Change the Passiveness of Institutional Investors? (May 1, 2015). Available at SSRN: https://ssrn.com/abstract=2606457 or http://dx.doi.org/10.2139/ssrn.2606457

Kiyoung Chang

University of South Florida Sarasota-Manatee - College of Business ( email )

8350 N. Tamiami Trail, SMC-C263
Sarasota, FL 34243-2025
United States
9413594359 (Phone)
9413594367 (Fax)

Ying Li (Contact Author)

University of Washington, Bothell - Business ( email )

18115 Campus Way NE
Bothell, WA 98011-8246
United States

Ha-Chin Yi

Texas State University, San Marcos - Department of Finance and Economics ( email )

601 University Drive
San Marcos, TX 78666
United States
512-245-3251 (Phone)

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