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Institutional monitoring and corporate restructurings
Rowland Atiase, University Of Texas At Austin
William Mayew, Duke University
Yanfeng Xue, University of Texas at Austin
ABSTRACT. We investigate the monitoring role performed by institutional investors in corporate restructurings. Institutional owners are characterized as sophisticated investors with enhanced ability to monitor corporate management. This paper focuses on corporate restructurings as a powerful setting to investigate the monitoring role played by institutions because although the literature has documented performance improvements following this specific type of managerial action, risk-averse managers may be reluctant to carry on such action due to higher risk and possible short-term performance decline caused by restructurings. We find results consistent with the hypotheses that institutional monitoring will (1) increase the likelihood a firm restructures and(2) encourage restructurings that stop poor performance before it becomes too severe (i.e. pre-emptive restructurings) and fix performance problems more completely (i.e. thorough restructurings).
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