Organization and Strategy Online Seminar（2020-03）

Topic: Country Diversity of ForeignInstitutional Investors and Corporate Governance:Evidence from Corporate Overinvestment

Speaker: Wei Shi, University of Miami

Time: Friday, 15 May, 10:00-11:30 am

Location: Microsoft Teams Online conference room

Abstract:

Research on the governance role of foreign institutional ownership has been inconclusive. This study attempts to reconcile this body of research by considering the country diversity of foreign institutional ownership (hereafter investor country diversity).Given that most foreign institutional investors hold very small stakes in portfolio firms, we argue that their governance effectiveness hinges on the extent to which they can engage in collective action. Because investor country diversity can elicit social categorization and prevent foreign institutional investors from taking collective action, their ability to play a governance role can be weakened, thereby giving CEOs room to engage in opportunistic behavior. Using corporate investment decisions as our research context, we find that investor country diversity is positively associated with corporate overinvestment. The positive association is stronger when the concentration of foreign institutional ownership is lower or when the CEO is more powerful. Findings from a sample of 1,789 U.S. firms lend support to our arguments. This study advances agency theory and ownership research by highlighting the importance of investors’ country diversity in shaping their governance effectiveness.

Introduction:

Wei Shi (师伟) is an associate professor of management atMiami Herbert Business School, University of Miami. He obtained his doctorate in business administration from Rice University in 2016.His primary research interests are at the intersections of corporate governance, upper echelons, and corporate strategy. His research has been published at outlets such as Academy of Management Journal, Strategic Management Journal, Journal of Management, and Journal of Corporate Finance. His email address is [email protected].

//www.bus.miami.edu/thought-leadership/faculty/management/shi.html

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