Institutional Monitoring: Evidence from the F-Score
Journal of Business Finance & Accounting, Forthcoming
47 Pages Posted: 4 Jul 2015 Last revised: 10 Aug 2015
Date Written: May 15, 2015
The extant literature shows that institutional investors engage in corporate governance to enhance a firm’s long-term value. Measuring firm performance using the F-Score, we examine the persistent monitoring role of institutional investors and identify the financial aspects of a firm that institutional monitoring improves. We find strong evidence that long-term institutions with large shareholdings consistently improve a firm’s F-Score and that such activity occurs primarily through the enhancement of the firm’s operating efficiency. Other institutions reduce a firm’s F-Score. Moreover, we find evidence that, while monitoring institutions improve a firm’s financial health, transient (followed by non-transient) institutions trade on this information.
Keywords: institutional investor, F-Score, monitoring, financial strength
JEL Classification: G23, G34
Suggested Citation: Suggested Citation