Proximity and Litigation: Evidence from the Geographic Location of Institutional Investors
46 Pages Posted: 21 Jun 2018
Date Written: June 18, 2018
In this paper, we examine how the geographic distance between a firm and its largest institutional investors affects the firm’s litigation risk. We show that geographic proximity between the firm and its largest institutional shareholders reduces the incidence of a lawsuit. Moreover, we find that geographic proximity affects the relationship between institutional investors’ ownership and the litigation risk of their portfolio firms. These findings indicate that geographically proximate investors may have an informational advantage over investors who are located far away, and that this advantage manifests itself in more effective monitoring of firm management, and consequently, in lower litigation risk.
Keywords: Litigation, Institutional Investors, Geography, Monitoring, Corporate Governance
JEL Classification: G23, G34, K41
Suggested Citation: Suggested Citation