Institutional investors, risk/performance and corporate governance

Hutchinson, Marion, Seamer, Michael, & Chapple, Larelle (2015) Institutional investors, risk/performance and corporate governance. The International Journal of Accounting, 50(1), pp. 31-52.

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Modern portfolio theory suggests that investors minimize risk for a given level of expected return by carefully choosing the proportions of various assets. This study sets out to determine the role of the institutional investor in monitoring risk and firm performance. Using a sample of Australian firms from 2006 to 2008, our empirical study shows a positive association between firm-specific risk, risk-management policy, and performance for firms with increasing institutional shareholdings. The study also finds that the significance of this association depends on the institutional investor's ability to influence management, which in turn depends on the size of ownership and whether the investee firm does not have potential business dealings with the investor. We also find that when firms are financially distressed, institutional investors engage in promoting short-term performance or exit rather than support long-term value creation. The results are robust while controlling the potential for endogeneity and using sensitivity tests to control for variants of performance and risk. These findings add to the growing body of literature examining institutional ownership and the importance of understanding the role of risk-management in the risk and return relation.

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ID Code: 81347
Item Type: Journal Article
Refereed: Yes
Keywords: Institutional investors, Corporate governance, Risk and performance
DOI: 10.1016/j.intacc.2014.12.004
ISSN: 1094-4060
Subjects: Australian and New Zealand Standard Research Classification > COMMERCE MANAGEMENT TOURISM AND SERVICES (150000) > ACCOUNTING AUDITING AND ACCOUNTABILITY (150100)
Divisions: Current > QUT Faculties and Divisions > QUT Business School
Current > Schools > School of Accountancy
Deposited On: 02 Feb 2015 22:54
Last Modified: 29 Jul 2015 00:17

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