Governance effort reallocation by institutional owners

69 Pages Posted: 23 Mar 2022 Last revised: 6 Feb 2024

Date Written: January 27, 2022

Abstract

We study the governance consequences of institutional investors' re-balancing between internal and external monitoring mechanisms. We exploit a regulatory experiment that lifted short-selling restrictions on a random sample of firms (i.e., Pilot firms). Heightened short-selling threats improve external discipline and alleviate the need for direct monitoring in Pilot firms, allowing monitoring-prone institutional investors to reallocate efforts to other portfolio firms (i.e., Non-pilot firms). We document that Non-pilot firms experience increased shareholder engagement and investor-friendly changes in governance when their monitoring institutional owners have more room for reallocating monitoring efforts.

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, Governance effort reallocation by institutional owners (January 27, 2022). Available at SSRN: https://ssrn.com/abstract=4019643 or http://dx.doi.org/10.2139/ssrn.4019643

Sergio J. García

CUNEF Universidad ( email )

Calle de los Pirineos 55
Madrid, 28040
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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