The negative corporate governance impact of distracted shareholders : evidence from value of cash holdings

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

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Author(s)

Detail(s)

Original languageEnglish
Pages (from-to)981-1003
Number of pages23
Journal / PublicationAsia-Pacific Journal of Accounting and Economics
Volume29
Issue number4
Online published4 Jan 2021
Publication statusPublished - 2022

Abstract

This paper examines whether distracted shareholders reduce firms’ value of cash holdings. Following prior literature, we construct a firm-year level shareholder ‘distraction’ measure, by exploiting exogenous shocks to institutional shareholders’ portfolios. We find that firms with distracted shareholders experience a decrease in the marginal value of cash holdings, which indicates that firms with distracted shareholders are more likely to misallocate company resources due to lack of monitoring. We further find that this effect is more pronounced for firms with low information asymmetry, few product market competitive threats, and high analyst coverage. The results of this paper suggest that institutional investor attention distraction will reduce firms’ monitoring intensity, which exacerbates firms’ opportunistic behaviors.

Research Area(s)

  • Distracted shareholders, firm value, value of cash holdings