Internalizing governance externalities: The role of institutional cross-ownership

Jie (Jack) He, Jiekun Huang, Shan Zhao

Research output: Contribution to journalArticlepeer-review


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)
Pages (from-to)400-418
Number of pages19
JournalJournal of Financial Economics
Issue number2
StatePublished - Nov 2019


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

ASJC Scopus subject areas

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


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