Institutional Investors and Corporate Governance: The Incentive to Be Engaged

Journal of Finance, Forthcoming

58 Pages Posted: 4 Nov 2018 Last revised: 10 Mar 2021

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: February 28, 2021

Abstract

This paper studies institutional investors’ incentives to be engaged shareholders. We measure incentives as the increase in an institution’s 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. In 2017, the average institution gains an extra $129,000 in annual cash flow if a stock in its portfolio rises 1%. The estimates range from $19,600 for institutions’ investments in small firms to $307,600 for their investments in large firms. Institutional shareholders in one firm often gain when the firm’s competitors in the industry do well, by virtue of institutions’ holdings in those firms, but the impact of common ownership is modest in the most concentrated industries.

Keywords: Institutional Investors, Governance, Passive Investors, Common Ownership

JEL Classification: G23, G30, G32

Suggested Citation

Lewellen, Jonathan W. and Lewellen, Katharina, Institutional Investors and Corporate Governance: The Incentive to Be Engaged (February 28, 2021). Journal of Finance, Forthcoming, 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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