Monitoring intensity, investment inefficiency and institutional shareholders: Evidence from JSE listed companies in South Africa

This study investigates how variation in monitoring intensity affects the efficiency of firms’ investment decisions in an emerging market in South Africa. The study hypothesis argues that the distraction of institutional shareholders has a statistically significant positive effect on corporate inves...

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Bibliographic Details
Published in:Investment management & financial innovations 2021, Vol.18 (3), p.1-15
Main Authors: Obagbuwa, Oloyede, Kwenda, Farai, Wilfred Akinola, Gbenga
Format: Article
Language:English
Subjects:
distraction measure
Generalized method of moments
institutional shareholders
investment inefficiency
Investments
monitoring intensity
South Africa
Stockholders
system GMM
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Summary:This study investigates how variation in monitoring intensity affects the efficiency of firms’ investment decisions in an emerging market in South Africa. The study hypothesis argues that the distraction of institutional shareholders has a statistically significant positive effect on corporate investment inefficiency. Using a more robust Generalized Method of Moments (Sys GMM) estimation approach to analyze data collected for firms listed at the Johannesburg Stock Exchange (JSE) for the period 2004–2019, the results showed that the distraction of institutional shareholders has a positive and statistically significant impact on investment inefficiency. That is, when the attention of institutional shareholders is shifted, the intensity of their monitoring drops, and the executive is involved in investment decisions that are not profitable. This insight has an implication for stakeholders and the value-creating corporate governance mechanism. The study concludes that institutional shareholders must always sustain their monitoring intensity to ensure that corporate decisions are consistent with the firm’s value.
ISSN:1810-4967
1812-9358
DOI:10.21511/imfi.18(3).2021.01