Monitoring or Selection? Institutional Ownership and Biodiversity Incidents

Job Market Paper

• Presentations: 2025 Cambridge Endowment for Research in Finance Cavalcade (Cambridge); 2025 International Finance and Banking Society Conference (Oxford); 2025 Financial Management Association (FMA) European Conference (Limassol); 2025 Financial Management Association (FMA) Annual Meeting (Vancouver, scheduled); University of Cambridge Brown Bag Seminar (Cambridge), University of Hamburg Brown Bag Seminar (Hamburg)
• Abstract: I examine the value consequences of biodiversity incidents and their association with institutional ownership. Markets react negatively, with average shareholder losses ranging from $76 million to $344 million per incident. Additional stock price declines around subsequent earnings announcements are consistent with market underreaction. Institutional ownership is negatively associated with incident occurrence. Using plausibly exogenous shocks to monitoring intensity, I distinguish monitoring from selection effects. Long-term and domestic institutions, especially insurance firms and public pension funds, reduce incidents through active monitoring, whereas short-term and foreign investors, particularly investment advisors, exhibit selection behavior. Evidence from shareholder proposals supports a governance-via-voice mechanism, with withdrawn biodiversity-related proposals associated with lower incident re-occurrence. Finally, incidents are positively associated with the cost of equity capital, suggesting that investors demand compensation for biodiversity risk exposure.

Voting Blue, Voting Green: The Politics of Proxy Voting

with Reena Aggarwal, Raghavendra P. Rau, Laura T. Starks

• We study how portfolio managers’ political preferences shape delegated proxy voting. Using political contributions to classify managers, funds led by Democratic-leaning managers are more supportive of environmental and social proposals and less supportive of governance proposals than funds led by Republican-leaning managers. Differences are larger where discretion is higher (active funds) and widen after presidential transitions. Investor flows co-move with topic-specific support, consistent with clientele sorting. Estimates exploiting within-fund manager changes and instrumental variables are directionally consistent with the baseline, supporting a causal channel. Comparisons are within identical proposals, highlighting political preferences as a determinant of delegated voting.

Blockholder Networks, Information Exchange, and M&A Performance

with Gishan Dissanaike, Wolfgang Drobetz, Henning Schröder

• Presentations: Eighth Annual Mergers and Acquisitions Research Centre Conference (London); 2024 Southern Finance Association (SFA) Annual Meeting (Palm Beach); 2024 AfriMed Finance Society (AFS) Summer Conference (Sardinia)*; 2023 Academy of Management (AOM) Annual Meeting (Boston); 2024 Financial Management Association (FMA) European Conference (Turin); 2024 Annual Boca-ECGI Corporate Finance and Governance Conference (Boca Raton); 2023 Financial Management Association (FMA) Annual Meeting (Chicago)*; 2023 European Financial Management Association (EFMA) 2025 Annual Meeting (Cardiff); 2023 Financial Management Association (FMA) European Conference (Aalborg); University of Cambridge Brown Bag Seminar (Cambridge); University of Flensburg Brown Bag Seminar (Flensburg); University of Strathclyde Brown Bag Seminar (Glasgow)
• Abstract: This paper examines how institutional investors exchange private information through co-shareholding networks and the implications for corporate acquisition outcomes. Using New York City taxi data, we identify face-to-face interactions among investor pairs and document that co-blockholders are more likely to seek on-site meetings, consistent with an increased exchange of information. Given evidence for an information channel, we construct the broader blockholder network between US institutional investors and show that acquirers held by more centrally positioned institutional investors earn higher announcement returns. The valuation effect is strongest when targets are more opaque and private information is more valuable. Consistent with an advisory channel, the effect only exits among investors with a comparative advantage in exploiting information, and facilitates “hidden gem” acquisitions rather than preventing poor deals. Overall, our findings suggest that co-shareholding networks promote private information flows that translate into superior advice and enhance M&A performance.

Institutional Investor Monitoring and Earnings Management: A Network Approach

with Wolfgang Drobetz, Omrane Guedhami, Sadok El Ghoul, Henning Schröder

• Presentations: 2022 Financial Management Association (FMA) Annual Meeting (Atlanta); 2022 European Financial Management Association (EFMA) Annual Meeting (Rome); 2022 Financial Management & Accounting Research Conference (FMARC) (Limassol); 2022 Conference on Institutional Investors in International Corporate Governance: Contemporary Paradigms and Perspectives (Hamburg); University of Cambridge Brown Bag Seminar (Cambridge)
• Abstract: Analyzing a large sample of U.S. firms over the 1990–2019 period, we show that firms with more central institutional investors in the equity holdings network engage less in accrual-based earnings management. This finding is robust to controlling for clique and common ownership, using alternative network and earnings properties, and extends to real earnings management. We establish causality using exogenous variation in network centrality and investor attention. The effect is most pronounced for institutions with a comparative advantage in exploiting monitoring information. Overall, our results suggest that central institutional investors gain an information advantage through access to the network’s resources, increasing their monitoring ability.
• Featured: Cambridge Judge Business School Blog

Investor Heterogeneity and Venture Performance

with Kathrin Rennertseder, Henning Schröder, Journal of Business Venturing, 2025

• Abstract: This study explores the relationship between investor heterogeneity on venture boards and firms' post-seed funding performance. We find a statistically and economically significant negative association of investor heterogeneity on both a firm’s likelihood of obtaining new funding and the amount raised in subsequent funding rounds. These findings suggest that greater heterogeneity among investors may impair board efficacy and weaken the quality of venture governance. Moreover, the marginal effect of investor heterogeneity is non-linear and diminishes over the course of a venture’s funding lifecycle. Our results remain robust after accounting for endogeneity concerns and alternative measures of investor culture.

Bank Monitoring, Agency Costs, and Corporate Financing Decisions: European Evidence

with Gabriel Frahm, Christian Glöer, André K. Simic, Review of Quantitative Finance and Accounting, 1–28, 2025

• Abstract: We examine the effects of bank ownership on debt ratio while considering the interplay of bank ownership with other types of institutional ownership. Our inferences are based on a large sample of 4575 firm-year observations from 980 firms across France, Germany, and the United Kingdom over the 2002–2018 period. We find that bank ownership reduces debt ratio, consistent with the bank monitoring theory. Further tests indicate that this effect is causal. The negative impact of bank ownership on debt ratio increases in the presence of other institutional investors, suggesting that bank monitoring is most effective when agency costs at the shareholder level are high. These findings support the view that bank ownership can mitigate agency conflicts not only between managers and investors but also at the shareholder level. Additional tests reveal that banks’ monitoring intensity is strongest in bank-based financial systems and during the post-global financial crisis period.

Foreign Bias in Institutional Portfolio Allocation: The Role of Social Trust

with Wolfgang Drobetz, Ignacio Requejo, Henning Schröder, Journal of Economic Behavior & Organization, 214, 233–269, 2023

• Abstract: We study the role of social trust in the equity allocation decisions of global investors using a large sample of institutionally managed portfolios of 8,088 investors from 33 countries over the 2000 through 2017 period. The negative relationship between social trust and foreign bias suggests that institutional investors from high-social trust countries are less prone to underinvesting in foreign equity. Our results provide credence to an information-based explanation, indicating that social trust reduces foreign bias by compensating for the lack of information about foreign stock markets. Moreover, the effect of social trust on foreign bias is stronger if host-country institutions are weak, while it vanishes when the host country is characterized by strong institutions. The informal institution of social trust compensates for the lack of well-functioning formal country-level institutions in international portfolio decisions. Finally, the allocation effect resulting from social trust is different from “blind” trust. The portfolios of high-trust investors exhibit higher cross-country diversification and an enhanced portfolio risk-return trade-off.