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The purpose of this paper is to examine the association between politically connected (POLCON) firms and stock price synchronicity, and whether this association can be attenuated by institutional investors.

This paper uses an ordinary least square regression model to examine the association between POLCON firms and stock price synchronicity; institutional ownership and stock price synchronicity; the moderating role of institutional ownership on the association between POLCON firms and stock price synchronicity; institutional domiciles and stock price synchronicity; and the moderating role of institutional domiciles on the association between POLCON firms and stock price synchronicity.

The result shows that POLCON firms are positively associated with stock price synchronicity. Further, the author also finds that institutional monitoring, through higher ownership by local institutional investors is associated with lower stock price synchronicity. In addition, this study documents evidence that institutional investors, particularly local institutional investors can improve stock price informativeness in POLCON firms.

The results suggest that POLCON firms are plagued by severe agency problems, resulting in limited flow of firm-specific information to the capital markets. However, the author shows that POLCON firm’s agency problems can be attenuated through effective monitoring by institutional investors. Further, institutional domiciles are shown to be significantly associated with stock price synchronocity. However, effective monitoring is largely driven by local institutional investors, in line with the geographical proximity theory.

The results suggest that regulators should increase their surveillance and monitoring effort, particularly on firms with close ties to the government. In particular, POLCON firms should be required to be more transparent in their corporate dealings. Additionally, auditors should intensify their audit efforts on POLCON firm to provide more reliable financial information to minority shareholders, investors and analysts. Finally, institutional investors should be incentivized by the Malaysian Securities Commission, via, the code of governance to play an effective monitoring role in Malaysian firms.

This study reveals that POLCON firms’ severe agency problems can be alleviated by effective institutional monitoring. Further result identifies institutional domiciles as a significant factor in influencing monitoring effectiveness in POLCON firms. This paper provides insights into the dynamic interaction between political connections, institutional monitoring, firm governance and capital markets behavior of an emerging market.

This paper aims to examine the monitoring role of institutional investors in corporate decision-making by classifying financial institutions based on geographical proximity and investment horizon from 1980 to 2014.

By using unique data sets on firm and institution location and investor horizon measure (Gaspar et al., 2005), the authors categorize institutional investors into six proximity-horizon classifications. This method captures the heterogeneity of investors. The corporate decisions assessed include firm investment, financing, payout policy, misbehavior, takeover defenses and profitability.

Both geographical proximity and investment horizon are directly related to institutional investors' monitoring cost. As a result, the effectiveness of institutional monitoring may vary based on geographical proximity and investment horizon. This paper collectively examines both dimensions of financial institutions and provides evidence that institutional investors present different preferences for corporate policies. Given stronger information advantage, both local and nonlocal investors that are long-term oriented fulfill better roles in monitoring corporate decisions but from different perspectives.

Different from previous studies that treat institutional investors homogeneously, this paper provides empirical support that investors are indeed different in influencing firm policies.

To the authors’ best knowledge, this is the first study that classifies investors based on two dimensions, geographical proximity and investment horizon, and examines their joint effects on corporate policies. This proximity-horizon classification allows the authors to better disentangle the effects of institutional ownership structure on the monitoring outcomes.

The purpose of this paper is to examine the main and joint effects of politically connected firms (PCFs) and institutional monitoring on the cost of debt.

Based on a panel data set of Malaysian politically connected and non-politically connected listed firms from 2002 till 2015, the author performs regression analysis. To address the issue of self-selection, the PCFs’ equation is estimated, following Lennox et al. (2012) and Heckman (1979).

This paper finds that PCFs are associated with higher cost of debt. However, the positive association between PCFs and the cost of debt is attenuated by higher institutional ownership (IO). Further test reveals that monitoring by institutional investors is heterogeneous from the perspective of domicile. Local institutional investors are associated with lower cost of debt, particularly in PCFs, while foreign institutional investors are associated with higher cost of debt.

The author shows that firm outcome, i.e. cost of debt in emerging markets can differ from advanced markets due to different institutional setting. Additionally, different types of political ties can produce different firm outcomes: GLCs are associated with lower cost of debt as opposed to connected firms based on personal ties. However, agency problems in PCFs can be alleviated through effective institutional monitoring. Consistent with geographical proximity theory, local institutional investors play a more effective monitoring role in Malaysian listed firms, thus lowering cost of debt. Overall, the results contribute to deeper understanding on variation in firm outcomes between emerging and advanced markets.

Institutional investors are major shareholders in publicly traded firms and play crucial roles in the financial and governance aspects of these firms. Despite their importance, little is known about their role in internal auditing. This study aims to fill this gap by investigating the relationship between institutional investors’ ownership and investment in the internal audit function (IAF).

The study uses ordinary least squares regressions with two-way cluster-robust standard errors (firm and year) to estimate the relationship between institutional investors’ ownership and investment in IAF for Malaysian listed firms between 2009 and 2020.

The findings show that companies with higher levels of institutional ownership invest more in IAF, suggesting that institutional investors can effectively monitor managers due to their large holdings. Moreover, both transient and dedicated institutional investors are more likely to invest in IAF.

The results highlight the importance of institutional investors as a significant determinant of investment in IAF, which can aid regulators and managers in understanding the institutional investors’ role in governing and optimizing the efficient use of a firm’s resources. The findings also provide insight into institutional investors’ behavior regarding monitoring systems, which may inspire regulators and policymakers to consider increasing institutional investors’ participation to enhance governance structures.

The purpose of this paper is to examine the investment preference of various types of institutional investors in Malaysia, and its influence on firm valuation, operating performance and capital expenditure.

This study employs ordinary least squares model to examine: investment preference according to different types of institutional investors; the association between various types of institutional investors and firm valuation; the association between various types of institutional investors and firm performance; and the association between various types of institutional investors and capital expenditure.

The result shows that different types of institutional investors exhibit different investment preference. From the domiciles perspective, local institutional investors (LII) are found to be associated with higher Tobin’s Q, ROA and net profit margin. When viewed from business relationship perspective, “pressure-resistant” institutional investors (PRII) are positively associated with Tobin’s Q, ROA and net profit margin. Both LII and PRII are also associated with higher capital expenditure.

This study reveals the investment preferences of various types of institutional investors in an emerging market economy. The results show that institutional monitoring is associated with higher firm valuation, higher firm performance and higher capital expenditure. However, the effect is largely driven by local and PRII, particularly government-controlled institutional funds. These evidence suggest that different firm outcomes between emerging and advanced economy can be explained by variation in institutional setting.

The purpose of this paper is to examine the association between institutional investor ownership and the compensation of executives at US banks during the financial crisis period.

This paper uses a linear regression model to examine the association between institutional ownership and the level of executive compensation at US banks.

Institutional investors influence executive compensation at banks with the impact being most pronounced for the CEO. Ownership by the top five investors is associated with greater total compensation. Active investors have the strongest impact on executive compensation as evidenced by a positive association between active ownership and both equity compensation and total compensation. As well, active ownership is negatively associated with bonus compensation. The paper also finds that passive and grey investors influence compensation but to a less significant extent than active investors.

The results suggest that the monitoring role of active and passive institutional investors is different in the banking industry. As well, institutional investors were likely a driving factor in shaping the compensation packages of the top executive team during the financial crisis period.

Stakeholders at banks should be aware that not all types of institutional investors act as effective monitors over issues such as controlling the amount of executive compensation paid to the highest paid executive, the CEO. Prospective investors should consider the type of institutional investor that owns large blocks of equity when making an investment decision. Namely, the interests of existing institutional investors may differ from their own interests.

This paper provides a new perspective on the monitoring roles played by different types of institutional investors. Furthermore, it provides a more comprehensive analysis by investigating the role of institutional investors in shaping the compensation packages of CEOs and other top executives including chief financial officers (CFOs) who play a vital role in risk management at banks.

This paper aims to review empirical research on the relationship between institutional ownership (IO) and board governance (85 studies).

Based on agency and upper echelons theory, the heterogeneous monitoring function of specific types and the nature of institutional investors on board composition, compensation and chief executive officer (CEO) characteristics will be focused.

The author found that most studies have referred to archival studies, analyzed the impact of board governance on IO, focused on CEO characteristics, neglected IO heterogeneity and advanced regression models to address endogeneity concerns. In line with the theoretical framework, the relationship between total IO and board governance is heterogeneous. However, specific types such as foreign, dedicated and pressure-resistant institutions represent active monitoring tools and push for increased board governance.

The author provided useful recommendations for future research from a content and methodological perspective, e.g. the need for analyzing the impact of IO on sustainable board governance and other characteristics of top management team members, e.g. the chief financial officer.

As many regulatory bodies implemented regulations to promote shareholder rights and board governance, this literature review highlights the connections of both corporate governance mechanisms. Managers should conduct a careful and timely investor analysis and change the composition and compensation of the board of directors in line with institutional investors’ preferences.

This analysis makes useful contributions to prior research by focusing on IO and board governance, whereas the author structured the heterogeneous variables and results within the structured literature review. The authors guides researchers, regulatory bodies and business practice in this corporate governance topic.

This study aims to examine the institutional investors’ preferences for internal governance mechanisms (internal audit function and audit committee effectiveness) in an emerging country like Malaysia.

A sample of 2,020 yearly firm observations in Bursa Malaysia over the period 2009-2012 is used. The two-stage least squares using instrumental variables (IV-2SLS) analysis is used to examine the relationships. To corroborate the findings of this study, a regression based on a one-year lag of the independent variables is used. Furthermore, ordinary least square regression and Generalized Method of Moments using instrumental variables (IV-GMM) are used.

Positive associations are found between the internal audit function and audit committee effectiveness and the institutional ownership.

These findings imply that institutional investors gravitate to firms that have high investment in internal audit function and effective audit committee. These findings are consistent with the conjecture that institutional investors try to minimize monitoring and exit costs and meet their fiduciary responsibility by investing in better internal audit firms.

This study offers insights to policymakers interested in enhancing internal governance mechanisms to attract institutional investors.

Limited empirical studies have examined the relation between internal governance mechanisms (internal audit function and audit committee effectiveness) and institutional ownership. This study adds to the existing literature on the importance of internal governance mechanisms by documenting an association between internal audit function and audit committee effectiveness and institutional ownership in an emerging country like Malaysia.

The purpose of this paper is to investigate the effect of long horizon institutional ownership on CEO career concerns to meet the short-term earnings benchmark.

Using a sample of 10,565 firm-year observations in the USA, the paper examines the extent to which long horizon institutional investors mitigate the positive relation between CEO turnover and missing the quarterly consensus analyst forecast.

After controlling for the general performance-turnover relation, this paper finds that long horizon institutional investors mitigate the positive relation between CEO turnover and missing the quarterly consensus analyst forecast. This finding is stronger when CEOs focus on long-term value creation and do not sacrifice long-term value to boost current earnings and is stronger when the monitoring intensity by long horizon institutional investors is greater.

The results suggest that long horizon institutional investors serve a monitoring role in alleviating CEO career concerns to meet the short-term earnings benchmark.

This paper contributes to the literature on the relation between long horizon institutional ownership and attenuated managerial short-termism. The literature is silent about why long horizon institutional investors alleviate managerial short-termism. This paper fills this void in the literature by documenting that long horizon institutional investors mitigate CEO career concerns for managerial short-termism. Moreover, this paper contributes to the literature on the monitoring role of institutional investors by documenting the incremental effect of institutional ownership on CEO career concerns to meet the short-term earnings benchmark.

This study aims to investigate the impact of institutional investors distraction on firms' choice between bank debt and public debt.

The study employs the measure of institutional investors distraction from Kempf et al. (2017), which captures exogenous attention-grabbing events in other aspects of institutional investors' portfolios holdings to examine this research question. The study uses a sample of 16,047 firm-year observations comprising 2,521 US firms for the period of 2000–2016.

The result shows a significant positive association between institutional shareholder distraction and firms' bank ratio. Cross-sectional tests show that the positive association between institutional shareholders distraction and firms' bank ratio is stronger for firms in poorer information environments and for firms facing greater competitive threats from rivals.

This study underscores the important governance role played by institutional shareholders and the consequence when such a monitoring role is impaired. In particular, firms with distracted shareholders rely on expensive bank monitoring and scrutiny to supply their additional monitoring capacity.