Short-Termism of Institutional Investors and the Double Agency Problem

Frentrop, P.

doi:10.2139/ssrn.2249872

Cited by 6 publications

(5 citation statements)

References 68 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…The relationship between state ownership and corporate risk-taking can be established from agency theory (Jensen & Meckling, 1976), which implies that state ownership can lead to the double-agency problem (Menozzi & Urtiaga, 2010). This double-agency problem in firms with high state-ownership is similar to the double-agency problem associated with institutional ownership described in Frentrop (2012). The double-agency problem arises due to the interest misalignment between managers and the controlling shareholders, and between the firms' state-ownership representatives (many of whom are politicians) and the ultimate owners of the firm (the state and its citizens).…”

Section: Literature Review and Development Of Hypothesesmentioning

confidence: 71%

State ownership and corporate risk‐taking: Empirical evidence in Vietnam

Phung

Nguyen

2020

Australian Economic Papers

View full text Add to dashboard Cite

Whether state ownership can affect the behaviour of corporations is an important research question, especially in a context such as severe recession or pandemic where policy makers have to consider bailing out large companies, thus increasing state ownership in corporations. This study investigates the impact of state ownership on corporate risk‐taking in Vietnamese listed firms. We find that state ownership is positively associated with corporate risk‐taking. The findings suggest that state ownership may encourage excessive risk‐taking, which has implications for policy makers when they consider increasing state ownership in corporations. We argue that state ownership representatives in Vietnamese corporations tend to take excessive risks to facilitate their personal gains, consistent with the prediction of the double‐agency problem hypothesis. We highlight the important role of a monitoring mechanism, which can mitigate this agency problem. We find that foreign ownership moderates the relationship between state ownership and risk‐taking in Vietnamese firms, consistent with the usefulness of a corporate‐governance mechanism in mitigating the double‐agency problem.

show abstract

Section: Literature Review and Development Of Hypothesesmentioning

confidence: 71%

State ownership and corporate risk‐taking: Empirical evidence in Vietnam

Phung

Nguyen

2020

Australian Economic Papers

View full text Add to dashboard Cite

show abstract

“…In addition, the short-term behaviors of institutional investors have been under-researched, despite their significance in corporate finance. Institutional investors are supposed to constructively cooperate with management in a long-term perspective, yet the dual roles of institutional investors and the conflicts of interests that exist among them call for good practices of institutional investors (Frentrop, 2012).…”

Section: Discussionmentioning

confidence: 99%

“…This issue has not been addressed in the hospitality discipline and has only rarely been discussed in the general management research, in a few governance articles (e.g. Frentrop, 2012). In the first agency relationship, institutional investors are the principal and the agents are the managers of firms of which institutions have ownership.…”

Section: Theoretical Contributions and Implicationsmentioning

confidence: 99%

In hotel REITs, are institutional investors beneficial for firm value?

et al. 2020

View full text Add to dashboard Cite

Motivated by growing attention to the agency problems of institutional investors, along with recent changes that have identified real estate investment trusts (REITs) as a separate industry segment, this study investigates the impacts of institutional ownership on the firm value of hotel REITs. Hotel REITs provide unique regulatory and operational settings in which it is appropriate to investigate the potential adverse consequences of institutional investments on firm value. This study performs additional analyses using non-REIT hotel corporations (hotel C-corporations) for comparison. After testing pooled ordinary least squares, fixed and random effects, and two-stage least squares in quadratic models, the results of the random effects models are found to be valid and are thus adopted to examine the hypothesized relationship. The analysis showed a U-shaped relationship between institutional ownership and firm value (as measured using Tobin’s q) but a dominantly negative relationship in the majority of observations, whereas no significant relationship is found for hotel C-corporations.

show abstract

“…It has been noted elsewhere in the literature that this concept of the investors focusing on their returns, above all else, is what is driving corporations to alter their approach to satisfy this short-termism-based demand (Redhead, 2008, p. 248), with the EU itself lamenting the "passive" approach taken by many shareholders (Sikka and Stittle, 2017, p. 2). Frentrop seeks to deconstruct the concept of a modern "investor" in light of the preeminence of the "institutional shareholder" led by managers, ultimately suggesting that the quest for managerial fees and compensation may be at the heart of the increase of shorttermism (Frentrop, 2012). Yet, whilst this "cognitive bias" puts the responsibility at the feet of investors (which is not invalid), the actions of investors are extremely complicated.…”

Section: The Corporate Governance Statement: a Regulatory Agendamentioning

confidence: 99%

Can credit rating agencies play a greater role in corporate governance disclosure?

Cash

2018

View full text Add to dashboard Cite

Short-Termism of Institutional Investors and the Double Agency Problem

Cited by 6 publications

References 68 publications

State ownership and corporate risk‐taking: Empirical evidence in Vietnam

State ownership and corporate risk‐taking: Empirical evidence in Vietnam

In hotel REITs, are institutional investors beneficial for firm value?

Can credit rating agencies play a greater role in corporate governance disclosure?

Contact Info

Product

Resources

About