Do foreign institutional investors improve board monitoring?

Neupane, Biwesh and Thapa, Chandra and Marshall, Andrew and Neupane, Suman and Shrestha, Chaman (2024) Do foreign institutional investors improve board monitoring? Journal of International Financial Markets Institutions and Money, 91. 101962. ISSN 1042-4431 (

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Exploiting the global financial crisis of 2007–08 as an exogenous shock that resulted in a significant decline in the ownership of foreign institutional investors (FIIs) in the Indian equity market, we find evidence of a causal link between FIIs' ownership and different dimensions of board monitoring. Specifically, the empirical results suggest that higher FIIs ownership leads to lower board size, busyness, network size, CEO power, CEO pay, and improved board diligence. However, we also document a negative link between FIIs' ownership and board independence, indicating that FIIs do not view independent directors as effective monitors. In terms of implications, our results suggest that improved board monitoring, induced by higher FIIs' ownership, leads to higher firm valuation and innovation activities.