Institutional investor cliques and governance

We examine the impact of investor coordination on governance. We identify coordinating groups of investors (cliques) as those connected through the network of institutional holdings. Clique members vote together on proxy items: a one standard deviation increase in clique ownership more than doubles...

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Bibliographic Details
Published inJournal of financial economics Vol. 133; no. 1; pp. 175 - 197
Main Authors Crane, Alan D., Koch, Andrew, Michenaud, Sébastien
Format Journal Article
LanguageEnglish
Published Amsterdam Elsevier B.V 01.07.2019
Elsevier Sequoia S.A
Subjects
Cliques
Coordination
Deviation
Exit
Governance
Institutional investments
Institutional ownership
Investment
Investors
Mutual funds
Owners
Ownership
Quality management
Scandals
Stock options
Trading
Voice
Coordination
G32
G23
Institutional ownership
Governance
Voice
Exit
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Summary:We examine the impact of investor coordination on governance. We identify coordinating groups of investors (cliques) as those connected through the network of institutional holdings. Clique members vote together on proxy items: a one standard deviation increase in clique ownership more than doubles votes against low quality management proposals. We use the 2003 mutual fund trading scandal to show that this effect is causal. These findings suggest coordination strengthens governance via voice. Coordination, however, also weakens governance via threat of exit. Clique owners exit positions more slowly, and firm value responds negatively to liquidity shocks when clique ownership is high.
ISSN:0304-405X
1879-2774
DOI:10.1016/j.jfineco.2018.11.012