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Institutional Monitoring: Evidence From The F-Score

C. Chung, Chang Liu, K. Wang, Blerina Zykaj
Published 2015 · Business

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The extant literature shows that institutional investors engage in corporate governance to enhance a firm's long-term value. Measuring firm performance using the F-Score, we examine the persistent monitoring role of institutional investors and identify the financial aspects of a firm that institutional monitoring improves. We find strong evidence that long-term institutions with large shareholdings consistently improve a firm's F-Score and that such activity occurs primarily through the enhancement of the firm's operating efficiency. Other institutions reduce a firm's F-Score. Moreover, we find evidence that, while monitoring institutions improve a firm's financial health, transient (followed by non-transient) institutions trade on this information.
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