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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.

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 paper aims to examine the relationship between earnings quality and corporate cash holdings in an emerging economy. Existing literature posits that earnings quality is a result of information asymmetry and firms with lower earnings quality increases cash holdings, to shield the firm from future uncertainties. In this paper, the authors propose a ‘private benefits hypothesis’, which suggests that lower earnings quality is an indicator of opportunism and expropriation of resources in the firm, through tunneling or excessive executive compensations. As a result, firms with lower earnings quality increase cash holdings in their control, to increase their private benefits and to avoid the scrutiny of the external stakeholders. The authors further examine the monitoring role played by institutional investors on cash holdings, with varying degrees of earnings quality.

This study uses an unbalanced panel data sourced from Prowessdx, from 2000 to 2019. The analysis employs 20,231 firm-year observations from 2,421 firms. Earnings quality is calculated following Dechow and Dichev (2002).

Empirical analysis confirms that the firms with higher earnings quality reduce cash. Further, institutional investors reduce the cash holdings in firms with higher earnings quality. Institutional investors effectively reduce the cash only in firms with at least 10% of equity shareholding. The results are robust to alternative measures of earnings quality and endogeneity concerns.

This study diverges from the information asymmetry hypothesis in the existing literature on earnings quality and cash holdings and highlights the underlying private benefits hypothesis, that will impact cash holdings. Next, the 10% institutional shareholding is important in the Indian context as it represents the minimum threshold at which block holders can request extraordinary general meetings (Section 100 of the Companies Act 2013) or the involvement of the National Company Law Tribunal (NCLT) (Section 213 of the Companies Act 2013). This study highlights that unlike in Anglo-Saxon economies, institutional investors or other minority shareholders are empowered by the Companies Act 2013 to play a vital role in corporate governance with a mere 10% equity.

This paper aims to investigate the relationship between corporate environmental, social and governance (ESG) ratings and leverage manipulation and the moderating effects of internal and external supervision.

The authors draw on a sample of Chinese non-financial A-share-listed firms from 2013 to 2020 to explore the effect of ESG ratings on leverage manipulation. Robustness and endogeneity tests confirm the validity of the regression results.

ESG ratings inhibit leverage manipulation by improving social reputation, information transparency and financing constraints. This effect is weakened by internal supervision, captured by the ratio of institutional investor ownership, and strengthened by external supervision, captured by the level of marketization. The effect is stronger in non-state-owned firms and firms in non-polluting industries. The governance dimension of ESG exhibits the strongest effect, with comprehensive environmental governance ratings and social governance ratings also suppressing leverage manipulation.

Firms should strive to cultivate environmental awareness, fulfil their social responsibilities and enhance internal governance, which may help to strengthen the firm’s sustainability orientation, mitigate opportunistic behaviours and ultimately contribute to high-quality firm development. The top managers of firms should exercise self-restraint and take the initiative to reduce leverage manipulation by establishing an appropriate governance structure and sustainable business operation system that incorporate environmental and social governance in addition to general governance.

Policymakers and regulators should formulate unified guidelines with comprehensive criteria to improve the scope and quality of ESG information disclosure and provide specific guidance on ESG practice for firms. Investors should incorporate ESG ratings into their investment decision framework to lower their portfolio risk.

This study contributes to the literature in four ways. Firstly, to the best of the authors’ knowledge, it is among the first to show that high ESG ratings may mitigate firms’ opportunistic behaviours. Secondly, it identifies the governance factor of leverage manipulation from the perspective of firms’ subjective sustainability orientation. Thirdly, it demonstrates that the relationship between ESG ratings and leverage manipulation varies with the level of internal and external supervision. Finally, it highlights the importance of governance in guaranteeing the other two dimensions’ roles by decomposing overall ESG.

This study provides new insights into the relationship between the heterogeneity of institutional investors (IIs) and corporate tax avoidance (CTA). It also investigates whether family ownership moderates this relationship.

Based on a sample of 200 French-listed firms from 2008 to 2017, we use the generalized method of moment (GMM) estimator proposed by Arellano and Bover (1995) and developed by Blundell and Bond (1998) to address endogeneity and omitted variable concerns.

The results show that passive IIs are associated with an increase in the level of tax avoidance. However, active ones significantly decrease the levels of tax avoidance practices. Moreover, we show that institutional activism is not sufficient to control managerial actions, particularly in the context of controlled family businesses. The results suggest that families may expropriate the rights of minority shareholders through a controlling coalition with passive IIs.

This study has several practical implications. First, the results are useful for policymakers who should constrain passive IIs to provide only one service (asset management). Second, this study may sensitize family owners to the need to cooperate with active IIs that are effective in monitoring the firm. In particular, families should be willing to sacrifice some of their socioemotional wealth to promote a balanced ownership structure, which is important for responsible and effective corporate governance.

This paper extends previous research by investigating the heterogeneity of IIs in terms of horizon, ownership and control. In addition, this paper sheds a new light on how family firms behave regarding tax avoidance practices in the presence of active and passive IIs.

This study aims to investigate the effect of the classification of origin country of institutional shareholder (domestic, developed and developing country) and its status on stock exchange (listed and unlisted) on environmental disclosure level in Indonesian companies.

The data set comprises 474 non-financial firms listed in Indonesian Stock Exchange (IDX) for the period of 2017 to 2019. The study uses an environmental disclosure checklist to measure the extent of environmental disclosure in companies’ reports. Panel regression analysis technique is adopted to investigate the association between total percentage of shares held by institutional shareholders based on the classification of origin country and the status in stock exchange, and the extent of environmental disclosure.

The study reveals that the extent of environmental disclosure is positively and significantly associated with institutional investors from domestic, developed countries, listed and unlisted institutional investors. Further analysis shows interesting results that institutions from developing countries have a negative and significant relationship with environmental disclosure in non-sensitive industries.

The authors recognize the issue of authors’ subjectivity in the measurement process of environmental disclosure. The sample for this study encompasses Indonesian listed firms. Thus, the results may not be generalized to Indonesian unlisted firms and other countries or regions.

This study suggests managers to engage more with institutional shareholders because they have greater concern for environmental disclosure practices. The current study also suggests managers to make strong environmental policies as they are important to ensure that institutional shareholders’ investments are safe.

Given the positive impact institutional shareholders have on the level of environmental disclosure, it indirectly indicates that institutional shareholders have a strong motivation to make the world a better place.

This study offers in-depth insights into the effect of institutional ownership on environmental disclosure based on the classification of origin country and listing status of institutional investors.

This study examines the influence of stock liquidity on stock price crash risk and the moderating role of institutional blockholders in Vietnam’s stock market.

Crash risk is measured by the negative coefficient of skewness of firm-specific weekly returns (NCSKEW) and the down-to-up volatility of firm-specific weekly stock returns (DUVOL). Liquidity is measured by adjusted Amihud illiquidity. The two-stage least squares method is used to address endogeneity issues.

Using firm-level data from Vietnam, we find that crash risk increases with stock liquidity. The relationship is stronger in firms owned by institutional blockholders. Moreover, intensive selling by institutional blockholders in the future will positively moderate the relationship between liquidity and crash risk.

Since stock liquidity could exacerbate crash risk through institutional blockholder trading, firm managers should avoid bad news accumulation and practice timely information disclosures. Investors should be mindful of the risk associated with liquidity and blockholder trading.

We contribute to the literature by showing that the activities of blockholders could partly explain the relationship between liquidity and crash risk. High liquidity encourages blockholders to exit upon receiving private bad news.

This study aims to explore how CEO narcissism drives investment in corporate social responsibility (CSR) and its mediating mechanism.

This study includes panel regression based on archival data.

CEO narcissism leads to signaling of organizational virtuous orientation that results in increase in CSR investment.

Relevance of CEO traits on CSR remains unexplored in emerging markets context, especially the underlying mechanism. This study uncovers these mechanisms.

This study aims to examine the effect of ownership structure on financial performance of commercial banks in Kenya.

The data were collected from audited financial statements of 39 commercial banks in Kenya for the period 2009–2020.

Regression results found evidence of ownership structure explaining commercial banks’ financial performance. The results found a negative association between state ownership and net interest margin, a negative association between management ownership and net interest margin and a negative association between institutional ownership and return on assets.

Based on the findings, commercial bank management should therefore devise ownership structure policies that are geared toward boosting their financial performance both in the short run and the long run. Second, this study recommends a minority shareholding of the state in commercial banks to deter political interference, protect investors’ wealth from erosion and allow the majority shareholders to adopt a strong corporate governance mechanism for higher financial performance. Banks with a high percentage of state ownership should consider partial privatization to improve corporate governance practices. Third, banks should adopt a managerial ownership policy limiting the proportion of equity stock held by executives to limit their powers in strategic decision-making. Fourth, this study proposes a percentage limit on the equity stock of an institutional investor to eliminate bureaucracy in strategic decision-making and protect investors’ wealth.

The study finding is meant to inform regulation and operation policies in the banking sector and contribute to the literature on ownership structure, especially in the banking sector.

This study aims to see the moderating effect of board diversity on the relationship between ownership structure and real earnings management.

This study uses unbalanced panel data of 75 listed energy firms (346 firm-year observations) from three South Asian emerging economies (Bangladesh, India, and Pakistan) from 2015 to 2019. The two-step system GMM estimation is used for data analysis. This study also uses fixed effect regression to obtain robust findings.

The findings show that firms with a greater ownership concentration and managerial ownership significantly reduce real earnings management. In contrast, the data refute the idea that institutional and foreign ownership affect real earnings management. We also find that board diversity interacts significantly with ownership concentration and managerial ownership, meaning that board diversity moderates the negative link of the primary relationship that reduces real earnings management. On the other hand, board diversity has no interaction with institutional and foreign ownership, implying no moderating effect exists on the primary relationship.

To the best of the authors’ knowledge, this is unique research investigating how different ownership structures affect real earnings management in the emerging nations’ energy sector, which the earlier studies overlook. More specifically, this research focuses on how board diversity moderates the relationships between ownership structure and real earnings management, which could be helpful for future investors.