This papershowsthatlocalinstitutionalinvestorsareeffectivemonitorsofcorporate
behavior.Firmswithhighlocalownershiphavebetterinternalgovernanceandare
moreprofitable.Thesefirmsarealsolesslikelytomanagetheirearningsaggressivelyor
backdateoptionsandarelesslikelytobetargetsofclassactionlawsuits.Further,
managersofsuchfirmsexhibitalowerpropensitytoengagein‘‘empirebuilding’’and
arelesslikelyto‘‘leadthequietlife’’.Examiningthelocalmonitoringmechanisms,we
find thatlocalinstitutionsaremorelikelytointroduceshareholderproposals,increase
CEO turnover,andreduceexcessCEOpay