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Behind the Scenes: The Corporate Governance Preferences of Institutional Investors

46 Pages Posted: 15 Mar 2010 Last revised: 7 Jul 2015

Joseph A. McCahery

Tilburg University - School of Law; European Banking Center (EBC); Tilburg Law and Economics Center (TILEC); European Corporate Governance Institute (ECGI)

Zacharias Sautner

Frankfurt School of Finance & Management gemeinnützige GmbH

Laura T. Starks

University of Texas at Austin - Department of Finance

Date Written: June 2015

Abstract

We survey institutional investors to better understand their role in the corporate governance of firms. Consistent with a number of theories we document widespread behind-the-scenes intervention as well as governance-motivated exit. Both governance mechanisms are viewed as complementary devices, in which intervention typically will occur prior to a potential exit. We find that long-term investors and investors that are less concerned about stock liquidity intervene more intensively. Finally, most investors use proxy advisors and believe that their information improves their own voting decisions.

Keywords: Institutional investors, corporate governance, shareholder activism

Suggested Citation

McCahery, Joseph A. and Sautner, Zacharias and Starks, Laura T., Behind the Scenes: The Corporate Governance Preferences of Institutional Investors (June 2015). Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1571046 or http://dx.doi.org/10.2139/ssrn.1571046

Joseph A. McCahery

Tilburg University - School of Law; European Banking Center (EBC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands
+31-(0)13-466-2306 (Phone)
+31-(0)13-466-2323 (Fax)

Tilburg Law and Economics Center (TILEC)

Warandelaan 2
Tilburg, 5000 LE
Netherlands

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Zacharias Sautner (Contact Author)

Frankfurt School of Finance & Management gemeinnützige GmbH ( email )

Sonnemannstraße 9-11
Frankfurt am Main, 60314
Germany

Laura T. Starks

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-471-5899 (Phone)
512-471-5073 (Fax)

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