Institutional Investor Preferences for Corporate Governance Mechanisms

Abstract:     
This paper examines institutional investors’ preferences for corporate governance mechanisms. While we find little evidence of an association between total institutional ownership and governance mechanisms, we use revealed preferences to identify a small group of “governance-sensitive” institutions that exhibit persistent associations between their ownership levels and firms’ governance mechanisms. We also find evidence that firms with a high level of ownership by institutions sensitive to shareholder rights exhibit significant future improvements in shareholder rights, consistent with shareholder activism. Finally, our results suggest that common proxies for governance sensitivity by investors (e.g., legal type, blockholding) do not cleanly measure governance preferences.

Number of Pages in PDF File: 50

Keywords: Corporate Governance, Institutional Investors, Board of Directors

JEL Classification: G11, G20, G34

working papers series