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

See all articles by Jean Helwege

Jean Helwege

UC Riverside

Vincent Intintoli

Clemson University, Department of Finance

Andrew (Jianzhong) Zhang

University of Nevada, Las Vegas - Department of Finance

Date Written: October 12, 2011

Abstract

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

Helwege, Jean and Intintoli, Vincent and Zhang, Andrew (Jianzhong), Voting with Their Feet or Activism? Institutional Investors’ Impact on CEO Turnover (October 12, 2011). Journal of Corporate Finance, Forthcoming . Available at SSRN: https://ssrn.com/abstract=1524541 or http://dx.doi.org/10.2139/ssrn.1524541

Jean Helwege (Contact Author)

UC Riverside ( email )

900 University Ave.
Anderson Hall
Riverside, CA 92521
United States
9518274284 (Phone)

Vincent Intintoli

Clemson University, Department of Finance ( email )

Clemson, SC 29634
United States
864-656-2263 (Phone)

Andrew (Jianzhong) Zhang

University of Nevada, Las Vegas - Department of Finance ( email )

4505 S. Maryland Parkway
Box 456008
Las Vegas, NV 89154-6008
United States

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