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Motivated monitors: The importance of institutional investors' portfolio weights
Journal article   Open access   Peer reviewed

Motivated monitors: The importance of institutional investors' portfolio weights

Eliezer M. Fich, Jarrad Harford and Anh L. Tran
Journal of financial economics, v 118(1), pp 21-48
01 Oct 2015
DOI: https://doi.org/10.1016/j.jfineco.2015.06.014
url
https://openaccess.city.ac.uk/id/eprint/12130/1/Institutions-11Feb-2015.pdfView
Accepted (AM)Open Access (License Unspecified),  Open

Abstract

Business & Economics Business, Finance Economics Social Sciences
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. (C) 2015 Elsevier B.V. All rights reserved.

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Business, Finance
Economics
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