Monitoring, Corporate Performance and Institutional Directors

Abstract

Our main objective is to study the effect of institutional directors on firm performance, distinguishing directors according to whether they maintain business relationships (pressure‐sensitive) or not (pressure‐resistant). Our results show that in weak regulatory and low investor protection environments, institutional directors have a negative impact on corporate performance. Our evidence shows that this negative effect is mainly driven by the role of pressure‐resistant directors and not for those directors representing mainly banks and other financial institutions with a long‐term investment horizon. These findings have implications for numerous parties, such as institutional investors, regulators, potential new board members and other corporate governance reform proponents, who frequently examine board characteristics to assess the effectiveness of boards in value‐creation policies.

Female directorship on boards and corporate sustainability policies: Their effect on sustainable development

“…In the last 20 years, institutional directors who represent investors such as pension funds, insurance companies, and banks have abandoned their former passive role on company boards to become increasingly active, thus raising their influence on financial markets (Wen, ). According to López‐Iturriaga, García‐Meca, and Tejerina‐Gaite (), institutional directors play an essential role in monitoring managers, and previous research demonstrates that these directors have effect on leverage (David, Hitt, & Gimeno, ), financial reporting quality (Ajinkya, Bhojraj, & Sengupta, ; Pucheta‐Martínez & García‐Meca, ), and firm performance (Pucheta‐Martínez & García‐Meca, ), inter alia. Furthermore, institutional directors have been increasing their activism concerning CSR, trying to integrate social, ethical, and environmental matters in their businesses (Wen, ).…”