Behind the Scenes: The Corporate Governance Preferences of Institutional Investors
Joseph A. McCahery
Tilburg University - School of Law; European Banking Center (EBC); European Corporate Governance Institute (ECGI); Duisenberg School of Finance; Tilburg Law and Economics Center (TILEC)
Frankfurt School of Finance & Management gemeinnützige GmbH
Laura T. Starks
University of Texas at Austin - Department of Finance
October 21, 2014
Tilburg Law School Research Paper No. 010/2010
AFA 2011 Denver Meetings Paper
We survey institutional investors to understand the applicability of theories and inferred indirect empirical evidence regarding their role in the corporate governance of firms. Consistent with theories, we document widespread behind-the-scenes intervention and governance-motivated exit, which are viewed as complementary devices, equal in importance, in which intervention typically precedes exit. Further, institutional investors believe that the threat of exit is an important disciplinary device. We also find that investor and investment characteristics matter for the intensity of intervention, particularly horizon and liquidity. Finally, investors generally use proxy advisors and believe the information their advisors provide improves their voting decisions.
Number of Pages in PDF File: 60
Keywords: Institutional investors, corporate governance, shareholder activism
Date posted: March 15, 2010 ; Last revised: October 21, 2014
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