Institutional shareholder distraction and workplace safety

Abstract

This study examines the impact of institutional shareholder distraction on a firm's ability to maintain a safe workplace environment. By utilising extreme returns of firms in unrelated industries of institutional shareholders' portfolios as exogenous indicators of investor distraction, we demonstrate that institutional investor distraction is associated with a higher incidence of workplace injuries. A one standard deviation increase in the institutional distraction measure is associated with an increase of about 11.16 % in injury rates compared to the mean injury rate. Our channel tests indicate that this negative relation between institutional distraction and workplace safety results from reduced monitoring efforts by distracted institutional investors, fostering managerial short-termism. Our baseline finding remains consistent across a series of robustness and endogeneity tests. Cross-sectional analysis reveals that the association between institutional distraction and workplace injuries is more pronounced in companies with weaker governance and greater information asymmetry.