Are Institutional Investors with Multiple Blockholdings Effective Monitors?

Abstract

We examine whether institutions’ monitoring effectiveness varies with the number of stocks they hold as the largest institutional blockholder. We find that a larger holding number is associated with higher nonroutine CEO turnover-performance sensitivity, more frequent proxy voting against management, and higher returns around forced CEO turnover announcements and 13D filings. These results are particularly evident when institutions have multiple blockholdings in the same industry, when they have prior monitoring experience in their portfolio firms, or when their holding periods are longer. Our results suggest that information advantages from multiple blockholdings are important channels through which institutions perform effective monitoring.