Institutional Investors and Corporate Governance
111 Pages Posted: 3 Sep 2020 Last revised: 2 Mar 2021
Date Written: August 28, 2020
We provide a comprehensive overview of the role of institutional investors in corporate governance with three main components. First, we provide a detailed characterization of key aspects of the legal and regulatory setting within which institutional investors govern portfolio firms. Second, we establish new stylized facts documenting the evolution and importance of institutional ownership. 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 block-holders. Further, not all institutional investors are identical, and we pay close attention to heterogeneity amongst institutional investors as block-holders.
Keywords: Institutional Investors, Corporate Governance, Exit, Voice, Shareholder Activism, Proxy Voting Advisors
JEL Classification: G11, G15, G22, G23
Suggested Citation: Suggested Citation