Institutional Investor Monitoring and the Structure of Corporate Boards

67 Pages Posted: 20 Mar 2008

See all articles by Gavin Smith

Gavin Smith

University of New South Wales - School of Banking and Finance

Peter L. Swan

University of New South Wales (UNSW Sydney; Financial Research Network (FIRN)

David R. Gallagher

Rozetta Institute

Date Written: October 2, 2007

Abstract

This study examines the effect of institutional investor influence on the structure of corporate boards. We focus on investor influences with respect to reducing board size and increasing board independence. Measures of institutional influence are negatively related to board size and positively related to board independence. To achieve these aims, institutions remove inside directors. This effect is enhanced when the firm has performed poorly - institutions take corrective action to improve firm performance by punishing those directors deemed responsible for contributing to poor firm performance. Institutional investors do not adjust their monitoring objectives with respect to board size and independence to reflect firm specific characteristics.

Keywords: Board of Directors, Monitoring, Institutional Investment Behavior

JEL Classification: G23, G32, J33

Suggested Citation

Smith, Gavin and Swan, Peter Lawrence and Gallagher, David R., Institutional Investor Monitoring and the Structure of Corporate Boards (October 2, 2007). Available at SSRN: https://ssrn.com/abstract=939441 or http://dx.doi.org/10.2139/ssrn.939441

Gavin Smith (Contact Author)

University of New South Wales - School of Banking and Finance ( email )

Sydney, NSW 2052
Australia

Peter Lawrence Swan

University of New South Wales (UNSW Sydney ( email )

School of Banking and Finance
UNSW Business School
Sydney NSW, NSW 2052
Australia
+61 2 9385 5871 (Phone)
+61 2 9385 6347 (Fax)

HOME PAGE: http://https://www.business.unsw.edu.au/our-people/peterswan

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

David R. Gallagher

Rozetta Institute ( email )

Sydney

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