Journal
JOURNAL OF FINANCIAL ECONOMICS
Volume 124, Issue 2, Pages 285-306Publisher
ELSEVIER SCIENCE SA
DOI: 10.1016/j.jfineco.2017.01.005
Keywords
Corporate governance; Institutional ownership; Monitoring; Index reconstitutions
Categories
Funding
- Swiss Finance Institute
- Swiss National Science Foundation
- NHH's FOCUS initiative
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We investigate whether corporations and their executives react to an exogenous change in passive institutional ownership and alter their corporate governance structure. We find that exogenous increases in passive ownership lead to increases in CEO power and fewer new independent director appointments. Consistent with these changes not being beneficial for shareholders, we observe negative announcement returns to the appointments of new independent directors. We also show that firms carry out worse mergers and acquisitions after exogenous increases in passive ownership. These results suggest that the changed ownership structure causes higher agency costs. (C) 2017 Elsevier B.V. All rights reserved.
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