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Monitoring role of institutional investors and acquisition performance: Evidence from East Asian markets

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  • Lou, Kuo-Ren
  • Lu, Yang-Kai
  • Shiu, Cheng-Yi

Abstract

This paper examines the monitoring role of institutional investors by investigating the market reactions and long-run stock performance of acquirers in East Asian markets. The market reacts positively to the announcement but underperforms in the long-run. Although institutional ownership does not associate with the announcement abnormal return, it correlates positively with long-run performance. This positive association is driven primarily by foreign institutional ownership. Further analysis shows that acquirers with higher independent, long-term, and passive foreign institutional ownership report better long-run performance. This result is consistent with the monitoring hypothesis that foreign institutional investors can improve the quality of managerial decisions. Finally, we investigate the impairment of goodwill postacquisition and find that acquirers with higher foreign institutional ownership suffer lower goodwill write-offs. Overall, our findings are consistent with the view that foreign institutional investors can provide effective monitoring of local firms in East Asian markets.

Suggested Citation

  • Lou, Kuo-Ren & Lu, Yang-Kai & Shiu, Cheng-Yi, 2020. "Monitoring role of institutional investors and acquisition performance: Evidence from East Asian markets," Pacific-Basin Finance Journal, Elsevier, vol. 59(C).
    • Handle: RePEc:eee:pacfin:v:59:y:2020:i:c:s0927538x19302653
    DOI: 10.1016/j.pacfin.2019.101244
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    2. Jiang, Li & Bai, Yu, 2022. "Strategic or substantive innovation? -The impact of institutional investors' site visits on green innovation evidence from China," Technology in Society, Elsevier, vol. 68(C).
    3. Panicker, Vidya Sukumara & Upadhyayula, Rajesh Srinivas & Sivakumar, Sandeep, 2022. "Internationalization of hybrid state-owned enterprises from emerging markets: Institutional investors as enablers," Journal of Business Research, Elsevier, vol. 151(C), pages 409-422.
    4. Zhang, Chunqiang & Gao, Lu & Gao, Xi & Chan, Kam C., 2022. "Do underwriters with foreign shareholders help protect bond investors? Evidence from bond covenants in China," Pacific-Basin Finance Journal, Elsevier, vol. 74(C).
    5. Liu, Hao & Ye, Xiaofen & Zhang, Qun, 2024. "Foreign ownership and M&A activity: Evidence from China," The North American Journal of Economics and Finance, Elsevier, vol. 73(C).
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    7. Gillan, Stuart L. & Nguyen, Nga & Nishikawa, Takeshi, 2023. "Heterogeneity in shareholder activism: Evidence from Japan," Pacific-Basin Finance Journal, Elsevier, vol. 77(C).

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    More about this item

    Keywords

    Foreign institutional investors; Monitoring; Corporate governance; East Asia; Mergers and acquisitions;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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