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Does Board Composition Matter to Institutional Investors?

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  • Shashank Bansal
  • M. Thenmozhi

Abstract

This study examines the resource dependency and signalling role of independent directors from the perspective of institutional investor’s and also investigates if the presence of large blockholder moderates the signalling effect. This study uses the quasi-natural experiment to examine this relationship. The difference-in-difference (DiD) analysis of 5,298 firm observations covering 618 National Stock Exchange (NSE) listed Indian firms for the period 2001–2011 provides empirical evidence that board composition does matter to institutional investors. We find that non-compliant firms who adopted the board independence requirement experience a significant increase in institutional ownership relative to previously compliant firms. We also find that institutional investors have invested more in family-owned firms during post-mandate period compared to government-, private- and foreign-owned firms. Overall, this study contributes to the existing literature on resource dependency theory and signalling theory and shows that the board independence acts as a signal to institutional investors and decreases the agency cost and cost of monitoring. JEL Codes: G3, G11, G34, G38, G23

Suggested Citation

  • Shashank Bansal & M. Thenmozhi, 2019. "Does Board Composition Matter to Institutional Investors?," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 18(2_suppl), pages 238-266, August.
    • Handle: RePEc:sae:emffin:v:18:y:2019:i:2_suppl:p:s238-s266
    DOI: 10.1177/0972652719846354
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    2. Bhaskar, Ratikant & Bansal, Shashank & Pandey, Dharen Kumar, 2024. "CEO duality and corporate social responsibility: A moderation effect of founder CEO," Research in International Business and Finance, Elsevier, vol. 71(C).
    3. Chada, Swechha, 2023. "Economic policy uncertainties and institutional ownership in India," The Journal of Economic Asymmetries, Elsevier, vol. 27(C).

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    More about this item

    Keywords

    Board composition; independent directors; institutional investors; corporate governance; signalling theory; resource dependency theory;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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