66 Pages Posted: 24 Mar 2009 Last revised: 24 Feb 2012
Date Written: May 29, 2010
We examine whether institutional investors affect corporate governance by analyzing portfolio holdings of institutions in companies from 23 countries during the period 2003-2008. We find that firm-level governance is positively associated with international institutional investment. Changes in institutional ownership over time positively affect subsequent changes in firm-level governance, but the opposite is not true. Foreign institutions and institutions from countries with strong shareholder protection play a crucial role in promoting governance improvements outside of the U.S. Institutional investors affect not only which corporate governance mechanisms are in place, but also outcomes. Firms with higher institutional ownership are more likely to terminate poorly performing CEOs and exhibit improvements in valuation over time. Our results suggest that international portfolio investment by institutional investors promote good corporate governance practices around the world.
Keywords: Institutional Investors, Corporate Governance, Shareholder Activism
JEL Classification: G32, G34, G38
Suggested Citation: Suggested Citation
Aggarwal, Reena and Erel, Isil and Ferreira, Miguel A. and Matos, Pedro P., Does Governance Travel around the World? Evidence from Institutional Investors (May 29, 2010). Fisher College of Business Working Paper No. 2009-008; ECGI - Finance Working Paper No. 267/2010; AFA 2010 Atlanta Meetings Paper; CELS 2009 4th Annual Conference on Empirical Legal Studies Paper; Fourth Singapore International Conference on Finance 2010 Paper. Available at SSRN: https://ssrn.com/abstract=1361143 or http://dx.doi.org/10.2139/ssrn.1361143