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

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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.

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    • Figure 1. Breakdown of investment expenditure
    • Table 1. Summary statistics
    • Table 2. Pairwise correlation matrix analysis
    • Table 3. Impact of shareholder distraction on inefficient investment
    • Conceptualization
      Oloyede Obagbuwa
    • Data curation
      Oloyede Obagbuwa
    • Formal Analysis
      Oloyede Obagbuwa, Gbenga Wilfred Akinola
    • Investigation
      Oloyede Obagbuwa
    • Methodology
      Oloyede Obagbuwa, Gbenga Wilfred Akinola
    • Writing – original draft
      Oloyede Obagbuwa
    • Project administration
      Farai Kwenda
    • Supervision
      Farai Kwenda, Gbenga Wilfred Akinola
    • Resources
      Farai Kwenda
    • Writing – review & editing
      Farai Kwenda, Gbenga Wilfred Akinola