Institutional investors' cross-ownership and internal control quality

Wei ZHOU; Baohua LIU; Tao CHEN; Yining CHEN

doi:10.1016/j.irfa.2025.104475

Institutional investors' cross-ownership and internal control quality

Wei ZHOU
, Baohua LIU^*
, Tao CHEN
, Yining CHEN

^*Corresponding author for this work

FACULTY OF BUSINESS

Research output: Journal Publications › Journal Article (refereed) › peer-review

2 Citations (Scopus)

Abstract

This study examines whether institutional investors' cross-ownership (IICO) impacts a firm's internal control quality (ICQ). Using a sample of Chinese firms, we find a positive association between IICO and ICQ. The observed relationship strengthens when firms suffer from a higher level of information asymmetry (agency costs). The documented effect remains robust to firm fixed effects, alternative measures of IICO, and alternative samples. As additional analyses show, the IICO impact prevails in every aspect of internal control and only holds for long-term institutional investors. Combined, these findings suggest that institutional cross-owners play a monitoring role in improving internal control systems.

Original language	English
Article number	104475
Journal	International Review of Financial Analysis
Volume	106
Early online date	21 Jul 2025
DOIs	https://doi.org/10.1016/j.irfa.2025.104475
Publication status	Published - Oct 2025

Bibliographical note

During the preparation of this work, the author(s) used ChatGPT to improve the language and readability of the text. After using this tool/service, the author(s) reviewed and edited the content as needed and took full responsibility for the content of the publication.

Publisher Copyright: © 2025 Elsevier Inc.

Funding

Zhou acknowledges the financial support from the Sichuan Mineral Resources Research Center (SCKCZY2024-ZC002) and Chengdu University Humanities and Social Science High-level Research Cultivation Project (2022GJBKYXMPYJJ15)

Keywords

Agency costs
Information asymmetry
Institutional investors' cross-ownership
Internal control quality

Access to Document

10.1016/j.irfa.2025.104475

Cite this

@article{af2a0be7fbce4f289076b1b280319abe,

title = "Institutional investors' cross-ownership and internal control quality",

abstract = "This study examines whether institutional investors' cross-ownership (IICO) impacts a firm's internal control quality (ICQ). Using a sample of Chinese firms, we find a positive association between IICO and ICQ. The observed relationship strengthens when firms suffer from a higher level of information asymmetry (agency costs). The documented effect remains robust to firm fixed effects, alternative measures of IICO, and alternative samples. As additional analyses show, the IICO impact prevails in every aspect of internal control and only holds for long-term institutional investors. Combined, these findings suggest that institutional cross-owners play a monitoring role in improving internal control systems.",

keywords = "Agency costs, Information asymmetry, Institutional investors' cross-ownership, Internal control quality",

author = "Wei ZHOU and Baohua LIU and Tao CHEN and Yining CHEN",

note = "During the preparation of this work, the author(s) used ChatGPT to improve the language and readability of the text. After using this tool/service, the author(s) reviewed and edited the content as needed and took full responsibility for the content of the publication. Publisher Copyright: {\textcopyright} 2025 Elsevier Inc.",

year = "2025",

month = oct,

doi = "10.1016/j.irfa.2025.104475",

language = "English",

volume = "106",

journal = "International Review of Financial Analysis",

issn = "1057-5219",

publisher = "Elsevier Inc.",

}

TY - JOUR

T1 - Institutional investors' cross-ownership and internal control quality

AU - ZHOU, Wei

AU - LIU, Baohua

AU - CHEN, Tao

AU - CHEN, Yining

N1 - During the preparation of this work, the author(s) used ChatGPT to improve the language and readability of the text. After using this tool/service, the author(s) reviewed and edited the content as needed and took full responsibility for the content of the publication. Publisher Copyright: © 2025 Elsevier Inc.

PY - 2025/10

Y1 - 2025/10

N2 - This study examines whether institutional investors' cross-ownership (IICO) impacts a firm's internal control quality (ICQ). Using a sample of Chinese firms, we find a positive association between IICO and ICQ. The observed relationship strengthens when firms suffer from a higher level of information asymmetry (agency costs). The documented effect remains robust to firm fixed effects, alternative measures of IICO, and alternative samples. As additional analyses show, the IICO impact prevails in every aspect of internal control and only holds for long-term institutional investors. Combined, these findings suggest that institutional cross-owners play a monitoring role in improving internal control systems.

AB - This study examines whether institutional investors' cross-ownership (IICO) impacts a firm's internal control quality (ICQ). Using a sample of Chinese firms, we find a positive association between IICO and ICQ. The observed relationship strengthens when firms suffer from a higher level of information asymmetry (agency costs). The documented effect remains robust to firm fixed effects, alternative measures of IICO, and alternative samples. As additional analyses show, the IICO impact prevails in every aspect of internal control and only holds for long-term institutional investors. Combined, these findings suggest that institutional cross-owners play a monitoring role in improving internal control systems.

KW - Agency costs

KW - Information asymmetry

KW - Institutional investors' cross-ownership

KW - Internal control quality

UR - https://www.scopus.com/pages/publications/105011377572

U2 - 10.1016/j.irfa.2025.104475

DO - 10.1016/j.irfa.2025.104475

M3 - Journal Article (refereed)

SN - 1057-5219

VL - 106

JO - International Review of Financial Analysis

JF - International Review of Financial Analysis

M1 - 104475

ER -

Institutional investors' cross-ownership and internal control quality

Abstract

Bibliographical note

Funding

Keywords

Access to Document

Other files and links

Fingerprint

Cite this