Passive Investors, Not Passive Owners

77 Pages Posted: 3 Aug 2014 Last revised: 15 Mar 2016

See all articles by Ian Appel

Ian Appel

UVA Darden

Todd A. Gormley

Washington University in St. Louis; European Corporate Governance Institute (ECGI)

Donald B. Keim

University of Pennsylvania - Wharton School

Date Written: February 6, 2016


Passive institutional investors are an increasingly important component of U.S. stock ownership. To examine whether and by which mechanisms passive investors influence firms’ governance, we exploit variation in ownership by passive mutual funds associated with stock assignments to the Russell 1000 and 2000 indexes. Our findings suggest that passive mutual funds influence firms’ governance choices, resulting in more independent directors, removal of takeover defenses, and more equal voting rights. Passive investors appear to exert influence through their large voting blocs, and consistent with the observed governance differences increasing firm value, passive ownership is associated with improvements in firms’ longer-term performance.

Keywords: corporate governance, institutional ownership, passive funds, performance

JEL Classification: D22, G23, G30, G34, G35

Suggested Citation

Appel, Ian and Gormley, Todd A. and Keim, Donald B., Passive Investors, Not Passive Owners (February 6, 2016). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: or

Ian Appel (Contact Author)

UVA Darden ( email )

United States

Todd A. Gormley

Washington University in St. Louis ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States
(314) 935-7171 (Phone)


European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

Donald B. Keim

University of Pennsylvania - Wharton School ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States
215-898-7685 (Phone)
215-898-6200 (Fax)

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