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Motivated monitors: the importance of institutional investors’ portfolio weights

Fich, E. M., Harford, J. and Tran, A. (2015). Motivated monitors: the importance of institutional investors’ portfolio weights. Journal of Financial Economics, 118(1), pp. 21-48. doi: 10.1016/j.jfineco.2015.06.014

Abstract

Studies of institutional monitoring focus on the fraction of the firm held by institutions. We focus on the fraction of the institution’s portfolio represented by the firm. In the context of acquisitions, we hypothesize that institutional monitoring will be greatest when the target firm represents a significant allocation of funds in the institution’s portfolio. We show that this measure is important in reconciling mixed findings for total institutional ownership in the prior literature. The results indicate that our measure of institutional holdings leads to greater bid completion rates, higher premiums and lower acquirer returns. This empirical evidence provides support for theories predicting a beneficial effect of blockholders in monitoring the firm in general and in enhancing the gains to takeover targets in particular.

Publication Type: Article
Additional Information: © Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/
Publisher Keywords: Monitoring; Institutional investors; Mergers and acquisitions; Takeover premiums
Subjects: H Social Sciences > HG Finance
Departments: Cass Business School > Finance
URI: http://openaccess.city.ac.uk/id/eprint/12130
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