Delegated Monitoring, Institutional Ownership, and Corporate Misconduct Spillovers

53 Pages Posted: 11 Apr 2019 Last revised: 6 Dec 2019

See all articles by Ugur Lel

Ugur Lel

University of Georgia - Department of Banking and Finance

Zhongling Qin

University of Georgia - Department of Finance

Date Written: March 21, 2019

Abstract

Upon the revelation of corporate misconduct in their portfolios, institutional investors experience a significant discount in the total market value of their portfolios, creating a negative externality that averages $39.4 billion of losses per year. This negative spillover increases with stronger ownership links to fraud firms, when more long-term investors hold such firms’ shares, and when the institutional investor should provide higher common ownership incentives to such firms, all of which lend support to a failed monitor hypothesis. These institutional investors experience significant fund outflows in the quarter immediately following the fraud incidents, which increase with greater ex-ante monitoring incentives.

Keywords: corporate misconduct, spillovers, institutional investors, monitoring failures

JEL Classification: G3, G23, D62

Suggested Citation

Lel, Ugur and Qin, Zhongling, Delegated Monitoring, Institutional Ownership, and Corporate Misconduct Spillovers (March 21, 2019). Available at SSRN: https://ssrn.com/abstract=3358068 or http://dx.doi.org/10.2139/ssrn.3358068

Ugur Lel (Contact Author)

University of Georgia - Department of Banking and Finance ( email )

Terry College of Business
Athens, GA 30602-6253
United States

Zhongling Qin

University of Georgia - Department of Finance ( email )

GA
United States

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