Monitoring the Monitor: Distracted Institutional Investors and Board Governance

• DOI: 10.1093/rfs/hhaa014
• Publication Date: 2020-02-12T12:14:02Z
• Authors: Claire Liu; Angie Low; Ronald W Masulis; Le Zhang
• Keywords: On board

Abstract Boards are crucial to shareholder wealth. Yet little is known about how oversight affects director incentives. Using exogenous shocks institutional investor portfolios, we find that distraction weakens board oversight. Distracted institutions less likely discipline ineffective directors with negative votes. Consequently, independent face weaker monitoring incentives and exhibit poor performance; also more frequently appointed. Moreover, the adverse effects of on various corporate governance outcomes stronger among firms problematic directors. Our findings suggest creates important monitor.