IDEAS home Printed from https://ideas.repec.org/a/eee/riibaf/v67y2024ipbs0275531923002763.html
   My bibliography  Save this article

Institutional investors’ site visits and firms’ financial distress

Author

Listed:
  • Cao, Jiawei
  • Dong, Dayong
  • Yue, Sishi

Abstract

In this paper, we investigate whether and how institutional investors’ site visits affect the financial distress of listed companies. By employing Chinese firms listed on the SZSE from 2013 to 2021, we find that institutional investors’ site visits significantly restrain financial distress and that this effect is more pronounced for firms with lower-quality information environments and corporate governance. The results are robust to several robustness checks and pass two endogeneity tests. We further find that the effect of institutional investors’ site visits on corporate financial distress is greater for groups of firms with larger institutional shareholding and that the effect of institutional investors’ site visits on corporate financial distress in non-SOEs is more significant than that in SOEs. We also find the restraints of financial distress caused by institutional investors’ site visits can also improve firms’ market value. Finally, the routine and unexpected visits have the same restraining effect on financial distress.

Suggested Citation

  • Cao, Jiawei & Dong, Dayong & Yue, Sishi, 2024. "Institutional investors’ site visits and firms’ financial distress," Research in International Business and Finance, Elsevier, vol. 67(PB).
    • Handle: RePEc:eee:riibaf:v:67:y:2024:i:pb:s0275531923002763
    DOI: 10.1016/j.ribaf.2023.102150
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0275531923002763
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ribaf.2023.102150?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Tykvová, Tereza & Borell, Mariela, 2012. "Do private equity owners increase risk of financial distress and bankruptcy?," Journal of Corporate Finance, Elsevier, vol. 18(1), pages 138-150.
    2. Bing Han & Dongmin Kong & Shasha Liu, 2018. "Do Analysts Gain an Informational Advantage by Visiting Listed Companies?," Contemporary Accounting Research, John Wiley & Sons, vol. 35(4), pages 1843-1867, December.
    3. Eng, L. L. & Mak, Y. T., 2003. "Corporate governance and voluntary disclosure," Journal of Accounting and Public Policy, Elsevier, vol. 22(4), pages 325-345.
    4. Anderson, Ronald C. & Duru, Augustine & Reeb, David M., 2009. "Founders, heirs, and corporate opacity in the United States," Journal of Financial Economics, Elsevier, vol. 92(2), pages 205-222, May.
    5. Patrick Bolton & Hui Chen & Neng Wang, 2011. "A Unified Theory of Tobin's q, Corporate Investment, Financing, and Risk Management," Journal of Finance, American Finance Association, vol. 66(5), pages 1545-1578, October.
    6. Jameson, Melvin & Prevost, Andrew & Puthenpurackal, John, 2014. "Controlling shareholders, board structure, and firm performance: Evidence from India," Journal of Corporate Finance, Elsevier, vol. 27(C), pages 1-20.
    7. Elyasiani, Elyas & Jia, Jingyi, 2010. "Distribution of institutional ownership and corporate firm performance," Journal of Banking & Finance, Elsevier, vol. 34(3), pages 606-620, March.
    8. Jin, Li & Myers, Stewart C., 2006. "R2 around the world: New theory and new tests," Journal of Financial Economics, Elsevier, vol. 79(2), pages 257-292, February.
    9. Suraj Srinivasan, 2005. "Consequences of Financial Reporting Failure for Outside Directors: Evidence from Accounting Restatements and Audit Committee Members," Journal of Accounting Research, Wiley Blackwell, vol. 43(2), pages 291-334, May.
    10. Qiang Cheng & Fei Du & Xin Wang & Yutao Wang, 2016. "Seeing is believing: analysts’ corporate site visits," Review of Accounting Studies, Springer, vol. 21(4), pages 1245-1286, December.
    11. Mitchell A. Petersen, 2009. "Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches," The Review of Financial Studies, Society for Financial Studies, vol. 22(1), pages 435-480, January.
    12. Thomas J. Chemmanur & Elena Loutskina & Xuan Tian, 2014. "Corporate Venture Capital, Value Creation, and Innovation," The Review of Financial Studies, Society for Financial Studies, vol. 27(8), pages 2434-2473.
    13. Edward I. Altman, 1968. "Financial Ratios, Discriminant Analysis And The Prediction Of Corporate Bankruptcy," Journal of Finance, American Finance Association, vol. 23(4), pages 589-609, September.
    14. Viral V. Acharya & Oliver F. Gottschalg & Moritz Hahn & Conor Kehoe, 2013. "Corporate Governance and Value Creation: Evidence from Private Equity," The Review of Financial Studies, Society for Financial Studies, vol. 26(2), pages 368-402.
    15. Cao, Jerry & Wang, Hanyang & Zhou, Sili, 2022. "Soft activism and corporate dividend policy: Evidence from institutional investors site visits," Journal of Corporate Finance, Elsevier, vol. 75(C).
    16. Cheng, Shijun, 2008. "Board size and the variability of corporate performance," Journal of Financial Economics, Elsevier, vol. 87(1), pages 157-176, January.
    17. Ohlson, Ja, 1980. "Financial Ratios And The Probabilistic Prediction Of Bankruptcy," Journal of Accounting Research, Wiley Blackwell, vol. 18(1), pages 109-131.
    18. Ho, Kung-Cheng & Yang, Lu & Luo, Sijia, 2022. "Information disclosure ratings and continuing overreaction: Evidence from the Chinese capital market," Journal of Business Research, Elsevier, vol. 140(C), pages 638-656.
    19. Bhattacharjee, Arnab & Han, Jie, 2014. "Financial distress of Chinese firms: Microeconomic, macroeconomic and institutional influences," China Economic Review, Elsevier, vol. 30(C), pages 244-262.
    20. Liangbo Ma & Shiguang Ma & Gary Tian, 2017. "Corporate Opacity and Cost of Debt for Family Firms," European Accounting Review, Taylor & Francis Journals, vol. 26(1), pages 27-59, January.
    21. Qiang Cheng & Fei Du & Brian Yutao Wang & Xin Wang, 2019. "Do Corporate Site Visits Impact Stock Prices?," Contemporary Accounting Research, John Wiley & Sons, vol. 36(1), pages 359-388, March.
    22. Wruck, Karen Hopper, 1990. "Financial distress, reorganization, and organizational efficiency," Journal of Financial Economics, Elsevier, vol. 27(2), pages 419-444, October.
    23. Nickell, Stephen J, 1996. "Competition and Corporate Performance," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 724-746, August.
    24. Broadstock, David & Chen, Xiaoqi, 2021. "Corporate site visits, private monitoring and fraud: Evidence from China," Finance Research Letters, Elsevier, vol. 40(C).
    25. Ferreira, Daniel & Ferreira, Miguel A. & Raposo, Clara C., 2011. "Board structure and price informativeness," Journal of Financial Economics, Elsevier, vol. 99(3), pages 523-545, March.
    26. Megginson, William L. & Meles, Antonio & Sampagnaro, Gabriele & Verdoliva, Vincenzo, 2019. "Financial distress risk in initial public offerings: How much do venture capitalists matter?," Journal of Corporate Finance, Elsevier, vol. 59(C), pages 10-30.
    27. Ayash, Brian & Rastad, Mahdi, 2021. "Leveraged buyouts and financial distress," Finance Research Letters, Elsevier, vol. 38(C).
    28. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 33(1), pages 125-132.
    29. Chen, Xia & Harford, Jarrad & Li, Kai, 2007. "Monitoring: Which institutions matter?," Journal of Financial Economics, Elsevier, vol. 86(2), pages 279-305, November.
    30. Murillo Campello & Long Chen, 2010. "Are Financial Constraints Priced? Evidence from Firm Fundamentals and Stock Returns," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(6), pages 1185-1198, September.
    31. Fama, Eugene F & MacBeth, James D, 1973. "Risk, Return, and Equilibrium: Empirical Tests," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 607-636, May-June.
    32. Gady Jacoby & Jialong Li & Mingzhi Liu, 2019. "Financial distress, political affiliation and earnings management: the case of politically affiliated private firms," The European Journal of Finance, Taylor & Francis Journals, vol. 25(6), pages 508-523, April.
    33. Jiang, Xuanyu & Yuan, Qingbo, 2018. "Institutional investors' corporate site visits and corporate innovation," Journal of Corporate Finance, Elsevier, vol. 48(C), pages 148-168.
    34. Ayash, Brian & Schütt, Harm, 2016. "Does going private add value through operating improvements?," Journal of Corporate Finance, Elsevier, vol. 40(C), pages 192-215.
    35. Zacharias Sautner & Vladimir Vladimirov, 2018. "Indirect Costs of Financial Distress and Bankruptcy Law: Evidence from Trade Credit and Sales [Bankruptcy codes and innovations]," Review of Finance, European Finance Association, vol. 22(5), pages 1667-1704.
    36. Davies, Ryan J. & Kim, Sang Soo, 2009. "Using matched samples to test for differences in trade execution costs," Journal of Financial Markets, Elsevier, vol. 12(2), pages 173-202, May.
    37. Su, Fei & Feng, Xu & Tang, Songlian, 2021. "Do site visits mitigate corporate fraudulence? Evidence from China," International Review of Financial Analysis, Elsevier, vol. 78(C).
    38. Murillo Campello & Long Chen, 2010. "Are Financial Constraints Priced? Evidence from Firm Fundamentals and Stock Returns," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(6), pages 1185-1198, September.
    39. Ping Wei & Xiaodan Mao & Xiaohong Chen, 2020. "Institutional investors' attention to environmental information, trading strategies, and market impacts: Evidence from China," Business Strategy and the Environment, Wiley Blackwell, vol. 29(2), pages 566-591, February.
    40. Grantley Taylor & Greg Tower & John Neilson, 2010. "Corporate communication of financial risk," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 50(2), pages 417-446, June.
    41. Huang, Jiekun & Kisgen, Darren J., 2013. "Gender and corporate finance: Are male executives overconfident relative to female executives?," Journal of Financial Economics, Elsevier, vol. 108(3), pages 822-839.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. He Xiao, 2023. "Institutional investors' corporate site visits and corporate investment efficiency," International Review of Finance, International Review of Finance Ltd., vol. 23(2), pages 359-392, June.
    2. Minhang Deng & Yunyi Wang & Gaoliang Tian & Bozhi Xu & Yuyan Tang, 2023. "Institutional investors' corporate site visits and resource extraction: Evidence from China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(5), pages 5211-5243, December.
    3. Lai, Shaojie & Li, Xiaorong & Liu, Shiang & Wang, Qing Sophie, 2022. "Institutional investors’ site visits and corporate employment decision-making," Journal of Contemporary Accounting and Economics, Elsevier, vol. 18(3).
    4. Weng, Shiqi & Rong, Zhao & Yu, Li, 2024. "Institutional site visits and corporate innovation: The role of analyst coverage," Pacific-Basin Finance Journal, Elsevier, vol. 85(C).
    5. Luo, Yonggen & Wu, Huiying & Ying, Sammy Xiaoyan & Peng, Qiuping, 2022. "Do company visits by institutional investors mitigate managerial myopia in R&D investment? Evidence from China," Global Finance Journal, Elsevier, vol. 51(C).
    6. Su, Fei & Feng, Xu & Tang, Songlian, 2021. "Do site visits mitigate corporate fraudulence? Evidence from China," International Review of Financial Analysis, Elsevier, vol. 78(C).
    7. Liu, Huan & Hou, Canran, 2023. "The impact of institutional investors' corporate site visits on corporate social responsibility," Emerging Markets Review, Elsevier, vol. 55(C).
    8. Wu, Fang & Cao, June & Zhang, Xiaosan, 2023. "Do non-executive employees matter in curbing corporate financial fraud?," Journal of Business Research, Elsevier, vol. 163(C).
    9. Yang, Xia & Ma, Zhong, 2022. "Institutional investors’ corporate site visits and dividend payouts," International Review of Economics & Finance, Elsevier, vol. 80(C), pages 697-716.
    10. Cao, Jerry & Wang, Hanyang & Zhou, Sili, 2022. "Soft activism and corporate dividend policy: Evidence from institutional investors site visits," Journal of Corporate Finance, Elsevier, vol. 75(C).
    11. Boubaker, Sabri & Cellier, Alexis & Manita, Riadh & Saeed, Asif, 2020. "Does corporate social responsibility reduce financial distress risk?," Economic Modelling, Elsevier, vol. 91(C), pages 835-851.
    12. Jing Lu & Guohua Cao & Chuan Lin & Stavros Sindakis & Saloome Showkat, 2024. "Corporate Site Visits and Stock Price Crash Risk: The Role of Institutional Investors’ Knowledge Acquisitions," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(2), pages 9082-9114, June.
    13. Zhou, Taiyun & Gan, Jiawu, 2022. "Institutional investors' site visits and corporate social responsibility: Evidence from China," Economic Modelling, Elsevier, vol. 115(C).
    14. Wu, Wenxin & Zhang, Xuezhi & Zhou, Zixun, 2022. "Institutional investors' corporate site visits and pay-performance sensitivity," Pacific-Basin Finance Journal, Elsevier, vol. 76(C).
    15. Jiang, Yahan & Wang, Cai & Li, Sha & Wan, Jing, 2022. "Do institutional investors' corporate site visits improve ESG performance? Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 76(C).
    16. Assaf Eisdorfer & Amit Goyal & Alexei Zhdanov, 2018. "Distress Anomaly and Shareholder Risk: International Evidence," Financial Management, Financial Management Association International, vol. 47(3), pages 553-581, September.
    17. Qi, Zhen & Chu, Chien-Chi & Zhou, Yixiao & Chen, Jian, 2022. "Corporate site visits and firm performance," International Review of Economics & Finance, Elsevier, vol. 82(C), pages 598-608.
    18. Qizhi Tao & Zohaib Zahid & Azhar Mughal & Farrukh Shahzad, 2022. "Does operating leverage increase firm's profitability and bankruptcy risk? Evidence from China's entry into WTO," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(4), pages 4705-4721, October.
    19. Lanlan Liu & Dan Luo & Liang Han, 2019. "Default risk, state ownership and the cross-section of stock returns: evidence from China," Review of Quantitative Finance and Accounting, Springer, vol. 53(4), pages 933-966, November.
    20. Xiao, Zhongyi & Chen, Haitao & Chen, Kang, 2023. "How does institutional investors' information acquisition inhibit share pledging? Evidence from China," International Review of Financial Analysis, Elsevier, vol. 89(C).

    More about this item

    Keywords

    Institutional investors; Site visits; Financial distress; Information environment; Corporate governance;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:riibaf:v:67:y:2024:i:pb:s0275531923002763. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ribaf .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.