Abstract
Exploiting the global financial crisis of 2007–08 as an exogenous shock that resulted in a significant decline in the ownership of foreign institutional investors (FIIs) in the Indian equity market, we find evidence of a causal link between FIIs' ownership and different dimensions of board monitoring. Specifically, the empirical results suggest that higher FIIs ownership leads to lower board size, busyness, network size, CEO power, CEO pay, and improved board diligence. However, we also document a negative link between FIIs' ownership and board independence, indicating that FIIs do not view independent directors as effective monitors. In terms of implications, our results suggest that improved board monitoring, induced by higher FIIs' ownership, leads to higher firm valuation and innovation activities.
| Original language | English |
|---|---|
| Article number | 101962 |
| Number of pages | 29 |
| Journal | Journal of International Financial Markets Institutions and Money |
| Volume | 91 |
| Early online date | 9 Feb 2024 |
| DOIs | |
| Publication status | Published - 31 Mar 2024 |
Funding
We thank Abhishek Ganguly, Alex Stojanovic, Bo Wang, Di Luo, Hisham Farag, Kefei You, Mike Jones, Patrick McColgan, Radha Shiwakoti, Sushanta Mallick, and Tonmoy Choudhury for their helpful comments and suggestions. We thank Christian Helmers, Manasa Patnam and Raghavendra Rau for providing patent data. We also thank seminar participants and discussants at the 2021 European Financial Management Association (EFMA) Annual Meeting, 2019 Behavioural Finance Working Group (BFWG) Conference, 2019 European Financial Management Association (EFMA) Annual Meeting, and seminar participants at the University of Greenwich.
Keywords
- board monitoring
- foreign institutional investors
- financial crisis
- firm value
- innovation