Internalizing Governance Externalities: The Role of Institutional Cross-ownership

Speaker: Prof. Shan Zhao (Grenoble Ecole de Management)


Topic:	Internalizing Governance Externalities: The Role of Institutional Cross-ownership
Time&Date:	12:00pm-13:30pm, 2018/6/25
Venue:	Room A619, Teaching A
Speaker:	Prof. Shan Zhao (Grenoble Ecole de Management)
Abstract:	We analyze the role of institutional cross-ownership in internalizing corporate governance externalities using data on mutual fund proxy voting. Exploiting the variation in cross-ownership across institutions within a proposal as well as the variation in cross-ownership across firms within a given institution’s portfolio, we show that an institution’s holdings in peer firms increase the likelihood that the institution votes against management in shareholder-sponsored governance proposals. This relation is stronger for firms whose managers are likely to have more outside opportunities. Consistent with a causal interpretation of our results, we find that increases in cross-ownership induced by financial institution mergers lead to a higher likelihood that the acquirer institution votes against management. We further show that high aggregate cross-ownership positively predicts management losing a vote. Overall, our evidence suggests that institutional cross-ownership improves governance by alleviating the inefficiency resulting from corporate governance externalities.