Do institutional investors monitor management? Evidence from the relationship between institutional ownership and capital structure
- Authors
- Chung, Chune Young; Wang, Kainan
- Issue Date
- Nov-2014
- Publisher
- ELSEVIER SCIENCE INC
- Keywords
- Corporate governance; Institutional monitoring; Heterogeneous institutions; Capital structure; Suboptimal leverage
- Citation
- NORTH AMERICAN JOURNAL OF ECONOMICS AND FINANCE, v.30, pp 203 - 233
- Pages
- 31
- Journal Title
- NORTH AMERICAN JOURNAL OF ECONOMICS AND FINANCE
- Volume
- 30
- Start Page
- 203
- End Page
- 233
- URI
- https://scholarworks.bwise.kr/cau/handle/2019.sw.cau/11683
- DOI
- 10.1016/j.najef.2014.10.001
- ISSN
- 1062-9408
1879-0860
- Abstract
- We examine the dynamic relations between institutional ownership and a firm's capital structure. We find that a firm's leverage decreases when institutional ownership increases. This result implies that a firm reduces its debt level as institutional investors substitute for the monitoring role of debt. More importantly, we find that a firm's suboptimal leverage decreases when the institutional ownership increases, and institutional ownership decreases when a firm's suboptimal leverage increases. This finding shows that institutions not only effectively monitor a firm's capital structure but they also passively sell their shares when dissatisfied with it. In addition, we find that the monitoring evidence on a firm's leverage and suboptimal leverage are more pronounced when the institutional investors are less likely to have business relationships with a firm or the information asymmetry is high in the market. (C) 2014 Elsevier Inc. All rights reserved.
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