Do UK Institutional Shareholders Monitor their Investee Firms?

M. Goergen, L.D.R. Renneboog, C. Zhang

Research output: Working paperDiscussion paperOther research output

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Abstract

As institutional investors are the largest shareholders in most listed UK firms, one expects them to monitor the firms they invest in. However, there is mounting empirical evidence which suggests that they do not perform any monitoring. This paper provides a new test on whether UK institutional investors engage in monitoring. The test consists of an event study on directors’ trades. If institutional shareholders act as monitors, their monitoring activities convey new information about a firm’s future value to other outside shareholders and reduce the informational asymmetry between the managers and the market. As a result, directors’ trades convey less information to the market, and the stock price reaction is weaker. However, our results show that institutional shareholders do not have any significant impact on the stock price reaction which stands in marked contrast with the impact that families, individuals and other firms have on stock prices.
Original languageEnglish
Place of PublicationTilburg
PublisherFinance
Number of pages24
Volume2008-38
Publication statusPublished - 2008

Publication series

NameCentER Discussion Paper
Volume2008-38

Fingerprint

Institutional shareholders
Monitoring
Institutional investors
Stock price reaction
Managers
Event study
Stock prices
Informational asymmetry
Empirical evidence
Shareholders
Large shareholders

Keywords

  • Insider trading
  • institutional investor monitoring
  • shareholder activism
  • corporate governance
  • ownership and control

Cite this

Goergen, M., Renneboog, L. D. R., & Zhang, C. (2008). Do UK Institutional Shareholders Monitor their Investee Firms? (CentER Discussion Paper; Vol. 2008-38). Tilburg: Finance.
Goergen, M. ; Renneboog, L.D.R. ; Zhang, C. / Do UK Institutional Shareholders Monitor their Investee Firms?. Tilburg : Finance, 2008. (CentER Discussion Paper).
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Goergen, M, Renneboog, LDR & Zhang, C 2008 'Do UK Institutional Shareholders Monitor their Investee Firms?' CentER Discussion Paper, vol. 2008-38, Finance, Tilburg.

Do UK Institutional Shareholders Monitor their Investee Firms? / Goergen, M.; Renneboog, L.D.R.; Zhang, C.

Tilburg : Finance, 2008. (CentER Discussion Paper; Vol. 2008-38).

Research output: Working paperDiscussion paperOther research output

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AB - As institutional investors are the largest shareholders in most listed UK firms, one expects them to monitor the firms they invest in. However, there is mounting empirical evidence which suggests that they do not perform any monitoring. This paper provides a new test on whether UK institutional investors engage in monitoring. The test consists of an event study on directors’ trades. If institutional shareholders act as monitors, their monitoring activities convey new information about a firm’s future value to other outside shareholders and reduce the informational asymmetry between the managers and the market. As a result, directors’ trades convey less information to the market, and the stock price reaction is weaker. However, our results show that institutional shareholders do not have any significant impact on the stock price reaction which stands in marked contrast with the impact that families, individuals and other firms have on stock prices.

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Goergen M, Renneboog LDR, Zhang C. Do UK Institutional Shareholders Monitor their Investee Firms? Tilburg: Finance. 2008. (CentER Discussion Paper).