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Proximity and litigation: Evidence from the geographic location of institutional investors

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  • Mazur, Mieszko
  • Salganik-Shoshan, Galla
  • Walker, Thomas
  • Wang, Jun

Abstract

In this paper, we examine how the geographic distance between a firm and its largest institutional investors affects the firm's litigation risk. We show that geographic proximity between the firm and its largest institutional shareholders reduces the incidence of a lawsuit. Moreover, we find that geographic proximity affects the relationship between institutional investors' ownership and the litigation risk of their portfolio firms. These findings indicate that geographically proximate investors may have an informational advantage over investors who are located far away, and that this advantage manifests itself in more effective monitoring of firm management, and consequently, in lower litigation risk.

Suggested Citation

  • Mazur, Mieszko & Salganik-Shoshan, Galla & Walker, Thomas & Wang, Jun, 2018. "Proximity and litigation: Evidence from the geographic location of institutional investors," Journal of Financial Markets, Elsevier, vol. 40(C), pages 60-74.
    • Handle: RePEc:eee:finmar:v:40:y:2018:i:c:p:60-74
    DOI: 10.1016/j.finmar.2018.05.002
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    Cited by:

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    2. Liu, Lewis & Neupane, Suman & Zhang, Lei, 2022. "Firm location effect on underwriting, subscription, and underpricing: Evidence from IPOs in China," Economic Modelling, Elsevier, vol. 108(C).
    3. Ziwei Wang & Chunfeng Wang & Zhenming Fang, 2023. "Common institutional ownership and corporate misconduct," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(1), pages 102-136, January.
    4. Kim, Taeyeon & Hwang, Hyoseok (David) & Kim, Hyun-Dong, 2023. "Do local investors know more? Evidence from securities class actions," Journal of Banking & Finance, Elsevier, vol. 156(C).
    5. Liu, Huan & Hou, Canran, 2023. "The impact of institutional investors' corporate site visits on corporate social responsibility," Emerging Markets Review, Elsevier, vol. 55(C).
    6. Li, Wanli & Lai, Yin & Zhong, Yufen, 2024. "The closer the better: Supplier geographic proximity and corporate information disclosure violation," The North American Journal of Economics and Finance, Elsevier, vol. 69(PA).

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    More about this item

    Keywords

    Litigation; Institutional investors; Geography; Monitoring; Corporate governance;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process

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