Institutional Investors and Corporate Governance
Foundations and Trends in Finance, forthcoming
European Corporate Governance Institute – Finance Working Paper 700/2020
112 Pages Posted: 3 Sep 2020 Last revised: 13 Jul 2021
Date Written: July 5, 2021
Abstract
We provide a comprehensive overview of the role of institutional investors in corporate governance with three main components. First, we establish new stylized facts documenting the evolution and importance of institutional ownership. Second, we provide a detailed characterization of key aspects of the legal and regulatory setting within which institutional investors govern portfolio firms. Third, we synthesize the evolving response of the recent theoretical and empirical academic literature in finance to the emergence of institutional investors in corporate governance. We highlight how the defining aspect of institutional investors – the fact that they are financial intermediaries – differentiates them in their governance role from standard principal blockholders. Further, not all institutional investors are identical, and we pay close attention to heterogeneity amongst institutional investors as blockholders.
Keywords: Institutional Investors, Corporate Governance, Exit, Voice, Shareholder Activism, Proxy Voting Advisors
JEL Classification: G11, G15, G22, G23
Suggested Citation: Suggested Citation