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Cross-border spillover of institutional activism: The monitoring role of locally-aggressive foreign institutional investors

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  • Mian, Rehman U.
  • Mian, Affan
  • Safdar, Nabeel
  • Ilyas, Muhammad

Abstract

Using data from 32 countries for the period 2008–2018, this study examines the previously unexplored monitoring role of foreign institutional investors that are aggressive monitors in their home markets. First, consistent with the short-termist view of cross-border activism spillover, we show that ownership by locally-aggressive foreign institutional investors is negatively associated with firm value. Second, using country-level investor protection and investment horizon, we find that the negative influence on value only holds for common-law and long term locally-aggressive foreign investors. Contrarily, we find that the association between foreign activists from civil-law countries and value is positive and consistent with the managerial-disciplining view of cross-border activism spillover. Findings for total foreign ownership and locally-acquiescent foreign ownership remain similar to those reported in previous studies. Our findings are robust to endogeneity concerns, multiple specifications, and alternative measures of monitoring aggression in home markets.

Suggested Citation

  • Mian, Rehman U. & Mian, Affan & Safdar, Nabeel & Ilyas, Muhammad, 2022. "Cross-border spillover of institutional activism: The monitoring role of locally-aggressive foreign institutional investors," Finance Research Letters, Elsevier, vol. 46(PB).
    • Handle: RePEc:eee:finlet:v:46:y:2022:i:pb:s1544612321004207
    DOI: 10.1016/j.frl.2021.102431
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    References listed on IDEAS

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    Cited by:

    1. Rahim, Imad & Mian, Rehman U. & Mian, Affan, 2024. "Country-level heterogeneity in foreign institutional investment horizons and firm value," International Review of Financial Analysis, Elsevier, vol. 92(C).

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    More about this item

    Keywords

    Investor activism; Foreign institutional ownership; Firm value; Institutional monitoring; G32; G34; G23;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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