Institutional Investors and the Governance Spillovers of Financial Regulations: Evidence From a Natural Experiment

61 Pages Posted: 23 Mar 2022

See all articles by Sergio J. García

Sergio J. García

Comillas Pontifical University

Jose M. Martin-Flores

CUNEF Universidad

Alvaro Remesal

CUNEF Universidad

Date Written: January 27, 2022

Abstract

We empirically study how financial regulations generate corporate governance spillovers through the institutional ownership network. Exploiting the Regulation SHO Pilot experiment, we find a significant removal of anti-takeover provisions by Non-Pilot firms when their motivated monitors are more exposed to Pilot firms. Besides, results across other corporate governance fronts such as board structure, opportunism, and innovation provide further support to a positive governance spillover. The results are consistent with the increase in market discipline in Pilot firms allowing motivated monitors to reallocate monitoring and promote investor engagement in Non-Pilot firms. Our findings provide novel insights for the evaluation of financial regulations.

Keywords: institutional ownership, short-selling constrains, corporate governance

JEL Classification: G23, G30, G32

Suggested Citation

García, Sergio J. and Martin-Flores, Jose-Maria and Remesal, Alvaro, Institutional Investors and the Governance Spillovers of Financial Regulations: Evidence From a Natural Experiment (January 27, 2022). Available at SSRN: https://ssrn.com/abstract=4019643 or http://dx.doi.org/10.2139/ssrn.4019643

Sergio J. García

Comillas Pontifical University ( email )

Alberto Aguilera 21
Madrid, Madrid 28015
Spain

Jose-Maria Martin-Flores (Contact Author)

CUNEF Universidad ( email )

Calle de Pirineos, 55
Madrid, Madrid 28040
Spain

Alvaro Remesal

CUNEF Universidad ( email )

Calle de los Pirineos 55
Madrid, 28040
Spain

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