We examine the governance transfer effect of corporate blockholders in a sample of 892 block acquisitions across 42 countries from 1990 to 2008. Using earnings management as a proxy for corporate governance outcome, we find that target firms' earnings management is aligned with that of block acquirers after acquisitions, implying that blockholders transfer their own governance quality to investee firms. We further identify three economic mechanisms that underlie the governance transfer effect, namely, monitoring effectiveness, monitoring cost, and monitoring environment. Our findings provide new insights into the governance role of blockholders.

We examine the effect of foreign institutional investors on firm innovation. Using firm-level data across 26 non-U.S. economies between 2000 and 2010, we show that foreign institutional ownership has a positive, causal effect on firm innovation. We further explore three possible underlying mechanisms through which foreign institutions affect firm innovation: Foreign institutions act as active monitors, provide insurance for firm managers against innovation failures, and promote knowledge spillovers from high-innovation economies. Our article sheds new light on the real effects of foreign institutions on firm innovation.