"Large Shareholders and Banks: Who Monitors and How"

Empirical studies of the role of large shareholders as monitors of firm management have focused on the relation between ownership structure and firm performance and have identified managerial turnover in periods of poor performance as a monitoring mechanism. Our central contribution is to identify empirically, using a sample of Japanese firms, another mechanism through which monitoring by firm stake holders occurs. We find that concentrated shareholding is associated with lower expenditure by management on several activities with scope for generating managerial private benefits. We also find that while shareholders are important for this form of monitoring, the evidence on such monitoring by creditors is less robust. Finally, we argue that monitoring of this type is more common in traditional producer-oriented industries (e.g. chemicals, metal products), and is less effective in hi-tech consumer good industries (e.g. electronics).