Internalizing governance externalities: The role of institutional cross-ownership

Jie (Jack) He, Jiekun Huang, Shan Zhao

Research output: Contribution to journalArticle

Abstract

We analyze the role of institutional cross-ownership in internalizing corporate governance externalities using granular mutual fund proxy voting data. Exploiting within-proposal and within-institution variation, we show that an institution's holdings in peer firms are positively associated with the likelihood that the institution votes against management on shareholder-sponsored governance proposals. We further find that high aggregate cross-ownership positively predicts management losing a vote. Overall, our results provide evidence that cross-ownership incentivizes institutional investors to play a more active monitoring role, suggesting that institutional cross-ownership serves as a market-based mechanism to alleviate the inefficiency induced by governance externalities.

Original languageEnglish (US)
JournalJournal of Financial Economics
DOIs
StatePublished - Jan 1 2019

Fingerprint

Cross-ownership
Externalities
Governance
Vote
Corporate governance
Proxy voting
Inefficiency
Institutional investors
Shareholders
Monitoring
Peers
Mutual funds

Keywords

  • Corporate governance
  • Cross-ownership
  • Externalities
  • Institutional investors
  • Proxy voting

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management

Cite this

Internalizing governance externalities : The role of institutional cross-ownership. / He, Jie (Jack); Huang, Jiekun; Zhao, Shan.

In: Journal of Financial Economics, 01.01.2019.

Research output: Contribution to journalArticle

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