Foundations and Trends® in Finance > Vol 12 > Issue 4

Institutional Investors and Corporate Governance

By Amil Dasgupta, London School of Economics and Political Science, UK, a.dasgupta@lse.ac.uk | Vyacheslav Fos, Boston College, USA, fos@bc.edu | Zacharias Sautner, Frankfurt School of Finance & Management, Germany, z.sautner@fs.de

 
Suggested Citation
Amil Dasgupta, Vyacheslav Fos and Zacharias Sautner (2021), "Institutional Investors and Corporate Governance", Foundations and Trends® in Finance: Vol. 12: No. 4, pp 276-394. http://dx.doi.org/10.1561/0500000056

Publication Date: 20 Sep 2021
© 2021 A. Dasgupta V. Fos and Z. Sautner
 
Subjects
Corporate finance,  Corporate governance
 

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In this article:
1. Introduction
2. Stylized Facts on the Importance of Institutional Investors
3. Legal Environment: Obligations, Ability, and Incentives of Institutional Investors to Govern
4. Theoretical Literature on Institutional Investors and Corporate Governance
5. Empirical Literature on Institutional Investors and Corporate Governance
6. Conclusions
Acknowledgements
References

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.

DOI:10.1561/0500000056
ISBN: 978-1-68083-878-7
133 pp. $90.00
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Table of contents:
1. Introduction
2. Stylized Facts on the Importance of Institutional Investors
3. Legal Environment: Obligations, Ability, and Incentives of Institutional Investors to Govern
4. Theoretical Literature on Institutional Investors and Corporate Governance
5. Empirical Literature on Institutional Investors and Corporate Governance
6. Conclusions
Acknowledgements
References

Institutional Investors and Corporate Governance

This monograph provides a comprehensive overview of the role of institutional investors in corporate governance. There are three main components: 1) tracing the emergence of institutional investors as the modal concentrated owners of public firms in modern economies; 2) providing a detailed characterization of key aspects of the legal and regulatory setting within which institutional investors operate with respect to the governance of their portfolio firms; and 3) synthesizing the evolving academic literature in finance to the emergence of institutional investors in corporate governance and linking theoretical predictions to empirical findings.

Following an introduction, section 2 provides a series of new stylized facts on the evolution of institutional ownership and its heterogeneity in the US and outside of the US. Section 3 describes the legal and regulatory environment within which institutional investors operate, with a focus on the obligations, ability, and incentives of such investors to engage in the corporate governance of firms. Section 4 reviews the theoretical literature on institutional investors and corporate governance while Section 5 discusses the empirical literature. Section 6 provides conclusions.

 
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