Institutional Investors and Corporate Governance: The Incentive to Be Engaged

49 Pages Posted: 4 Nov 2018

See all articles by Jonathan Lewellen

Jonathan Lewellen

Dartmouth College - Tuck School of Business; National Bureau of Economic Research (NBER)

Katharina Lewellen

Dartmouth College - Tuck School of Business

Date Written: September 1, 2018

Abstract

This paper studies institutional investors’ incentives to be engaged shareholders. We measure incentives as the increase in an institution’s cash flow (management fees) when a stockholding increases 1% in value, considering both the direct effect on assets under management and the indirect effect on subsequent fund flows. By 2015, the average institution gains roughly $143,100 in annual cash flow if a firm in its portfolio rises 1%. The estimates range from $22,300 for small institutions (who hold relatively concentrated portfolios) to $335,900 for the largest institutions (with more diffuse holdings). Institutional shareholders in one firm often gain when rival firms in the industry do well, by virtue of the institution’s holdings in those firms, but the effects are modest in the most concentrated industries. Our estimates suggest that institutional investors often have strong incentives to be active shareholders.

Keywords: Institutional Investors, Governance, Passive Investors

JEL Classification: G23, G30, G32

Suggested Citation

Lewellen, Jonathan W. and Lewellen, Katharina, Institutional Investors and Corporate Governance: The Incentive to Be Engaged (September 1, 2018). Tuck School of Business Working Paper No. 3265761. Available at SSRN: https://ssrn.com/abstract=3265761 or http://dx.doi.org/10.2139/ssrn.3265761

Jonathan W. Lewellen

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States
603-646-8650 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Katharina Lewellen (Contact Author)

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

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