Academic Research on Corporate Monitors

• Liability insurers as corporate monitors, Holderness, C. G. (1990). Liability insurers as corporate monitors. International Review of Law and Economics, 10(2), 115-129.
• Liquidity versus control: The institutional investor as corporate monitor, Coffee, J. C. (1991). Liquidity versus control: The institutional investor as corporate monitor. Columbia law review, 91(6), 1277-1368. The origin of division of powers between Board of Directors and Shareholders has been subject of different judicial interpretations. Company law is a standard federal law. Hence, it envisages a clear division of powers between Shareholders and Board of Directors. The purpose of this paper is to analyse the methods and role envisaged for shareholders in corporate governance, given the little incentives and limited means available to them to perform any supervisory function over Board of Directors. The study reports, that it is difficult to tie down any definite role for investors in corporate governance. Corporate governance ought to shift from being a procedural requirement when it comes to addressing the issue of shareholder activism. An implication of the study is to put emphasis for enforcement of shareholder rights through civil proceedings. This can be achieved by introducing substantive provisions codifying duty of care, fiduciary role-playing requirements for Board of Directors. 
• Dividends, corporate monitors and agency costs, Borokhovich, K. A., Brunarski, K. R., Harman, Y., & Kehr, J. B. (2005). Dividends, corporate monitors and agency costs. Financial Review, 40(1), 37-65. We report new evidence on the hypothesis that dividends reduce agency costs. Consistent with dividends as a mechanism to reduce agency costs, we find that, on average, firms with a majority of strict outside directors on their boards experience significantly lower mean abnormal returns around the announcements of sizeable dividend increases. Our results are robust to multivariate controls for firm size, leverage, ownership, growth options, and change in dividend yield. However, we find no evidence that dividend increases reduce agency costs as measured by poison pills or outside blockholdings. 
• Are large shareholders effective monitors? An investigation of share ownership and corporate performance, Zeckhauser, R. J., & Pound, J. (1990). Are large shareholders effective monitors? An investigation of share ownership and corporate performance. In Asymmetric information, corporate finance, and investment (pp. 149-180). University of Chicago Press.
• Monitors and freeriders in commercial and corporate settings, Levmore, S. (1982). Monitors and freeriders in commercial and corporate settings. Yale LJ, 92, 49.
• Large shareholders and corporate control, Shleifer, A., & Vishny, R. W. (1986). Large shareholders and corporate control. Journal of political economy, 94(3, Part 1), 461-488. In a corporation with many small owners, it may not pay any one of them to monitor the performance of the management. We explore a model in which the presence of a large minority shareholder provides a partial solution to this free-rider problem. The model sheds light on the following questions: Under what circumstances will we observe a tender offer as opposed to a proxy fight or an internal management shake-up? How strong are the forces pushing toward increasing concentration of ownership of a diffusely held firm? Why do corporate and personal investors commonly hold stock in the same firm, despite their disparate tax preferences? 
• A modest proposal for improved corporate governance, Lipton, M., & Lorsch, J. W. (1992). A modest proposal for improved corporate governance. The business lawyer, 59-77. This article presents a proposal for improved corporate governance that could be implemented voluntarily by business corporations and their boards, without relying on changes in laws, regulations, court decisions, or shareholder behavior. The central elements of the proposal involve: limiting board size; setting a two-to-one ratio of independent to inside directors; increasing the time directors spend on board matters, including an annual two or three day strategy session; annual evaluation of the CEO by the outside directors; selecting a lead outside director; improving the flow of information to the board; systematically reviewing corporate and management performance against goals; creating an annual forum for the board to meet with major shareholders; and providing a special report to shareholders, and access to the proxy statement for major shareholders, in the event of unsatisfactory long-term results. 
• The impact of institutional ownership on corporate operating performance, Cornett, M. M., Marcus, A. J., Saunders, A., & Tehranian, H. (2007). The impact of institutional ownership on corporate operating performance. Journal of Banking & Finance, 31(6), 1771-1794. This paper examines the relation between institutional investor involvement in and the operating performance of large firms. We find a significant relation between a firms operating cash flow returns and both the percent of institutional stock ownership and the number of institutional stockholders. However, this relation is found only for a subset of institutional investors: those less likely to have a business relationship with the firm. These results suggest that institutional investors with potential business relations with the firms in which they invest are compromised as monitors of the firm. 
• The Missing Monitor in Corporate Governance: The Directors'& (and) Officers' Liability Insurer, Baker, T., & Griffith, S. J. (2006). The Missing Monitor in Corporate Governance: The Directors'& (and) Officers' Liability Insurer. Geo. LJ, 95, 1795.
• The effects of corporate governance and institutional ownership types on corporate social performance, Johnson, R. A., & Greening, D. W. (1999). The effects of corporate governance and institutional ownership types on corporate social performance. Academy of management journal, 42(5), 564-576. The effects of institutional investor types and governance devices on two dimensions of corporate social performance (CSP) were examined. Pension fund equity was positively related to both a people (women and minorities, community, and employee relations) and a product quality (product and environment) dimension of CSP, but mutual and investment bank funds exhibited no direct relationship with CSP. Outside director representation was positively related to both CSP dimensions. Top management equity was positively related to the product quality dimension but unrelated to the people dimension of CSP. 
• Large shareholders as monitors: Is there a tradeoff between liquidity and control?, Maug, E. (1998). Large shareholders as monitors: Is there a tradeoff between liquidity and control?. The journal of finance, 53(1), 65-98. This paper analyzes the incentives of large shareholders to monitor public corporations. We investigate the hypothesis that a liquid stock market reduces large shareholders' incentives to monitor because it allows them to sell their stocks more easily. Even though this is true, a liquid market also makes it less costly to hold larger stakes and easier to purchase additional shares. We show that this fact is important if monitoring is costly: market liquidity mitigates the problem that small shareholders free ride on the effort of the large shareholder. We find that liquid stock markets are beneficial because they make corporate governance more effective.