Institutional investor monitoring motivation and the marginal value of cash

Charles Ward, Chao Yin, Yeqin Zeng*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review


This paper examines whether the motivation of institutional investors in monitoring a firm is positively related to the relative importance of the firm's stock in their portfolios. We find that greater motivated monitoring institutional ownership is associated with a higher marginal value of corporate cash holdings, which cannot be explained by other corporate governance measures and institution types. Further, we find that the economic effect of institutional monitoring on the marginal value of cash falls with decreasing institutions' monitoring motivation. Based on these findings, we construct a monitoring motivation-weighted institutional ownership measure and document a positive relation between it and the marginal value of cash. Our results are robust after controlling for the endogeneity of institutional ownership, three cash regimes, firm size, and changes in US public firms over time.
Original languageEnglish
Pages (from-to)49-75
JournalJournal of Corporate Finance
Early online date2 Nov 2017
Publication statusPublished - Feb 2018


  • institutional investors
  • marginal value of cash
  • monitoring motivation
  • index switch


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