Posted by Mieszko Mazur, IESEG School of Management, and Galla Salganik-Shoshan, Ben-Gurion University of the Negev, on
Tuesday, March 7, 2017
Mieszko Mazur is Assistant Professor at the IESEG School of Management; and Galla Salganik-Shoshan, Assistant Professor of Finance at Ben-Gurion University of the Negev. This post is based on article by Professor Mazur and Professor Salganik-Shoshan, forthcoming in the Journal of Financial Markets.
In a modern corporation, a single large investor no longer monopolizes active monitoring. A typical investor base in the U.S. public firm constitutes several blockholders which arguably maximize the very same objective function. These investors communicate with one another via private channels e.g., word-of-mouth and interpersonal connections, in order to coordinate their monitoring activities and exert influence on corporations to adopt governance attributes that better protect their interests.
The article examines whether institutional investors intervene in corporations with the aim of improving their incentive systems. To investigate this question, we construct metrics based on the geographic location of institutions. We conjecture that institutional investors get involved in informal interactions and that the intensity of these interactions as well as their effectiveness is commensurate with the geographic distance between them. Investors which are close to each other in physical space, are more likely to exchange ideas through casual conversation in person or over the phone in the same word-of-mouth channel. Consequently, they are more likely to share similar views, act alike, and cooperate.
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