Institutional blockholder monitoring and stock price crash risk

초록

We examine whether institutional investors can reduce the risk of stock price crashes caused by managers’ intentional withholding of bad news. Specifically, we focus on the effect of institutional blockholder monitoring on stock price crash risk. The empirical results show negative relationships between institutional blockholdings and various crash risk variables, which suggests that institutional blockholder monitoring of nontransparent managerial behaviors can decrease crash risk. Furthermore, we find that the influence of monitors is more pronounced in firms with high information asymmetry, thereby corroborating the institutional blockholder monitoring role. This study validates the monitoring role of dedicated institutional investors in agency-motivated managerial behaviors. © 2024 Board of Trustees of the University of Illinois

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