Voting with Their Feet or Activism? Institutional Investors’ Impact on CEO Turnover
Journal of Corporate Finance, Forthcoming
44 Pages Posted: 21 Dec 2009 Last revised: 12 Oct 2011
Date Written: October 12, 2011
We examine the relation between institutional investors and management discipline over the last several decades to better understand how CEO turnover has increased. Using a sample of forced and voluntary turnovers, we investigate the changing roles of activism and exit among institutional investors between 1982-1994 and 1995-2006. We find evidence of activist investors throughout the sample period and their impact is consistently significant in multivariate analysis. In contrast, voting with their feet has declined to the point where it no longer affects turnover outcomes. Nonetheless, activism is fairly uncommon and does not explain the higher turnover observed over time. Block holdings of known activists have increased and are linked to improving target firms. However, other blocks merely reflect the increasing size of institutional money managers. Going forward, the increasing size of institutional investors seems likely to inhibit voting with their feet while activism remains an important vehicle for change.
Keywords: Forced CEO turnover, Institutional investors, Voting with their feet, Exit, Governance
JEL Classification: G34, G32, G20, G23, G11
Suggested Citation: Suggested Citation