Institutional Investor Power and Heterogeneity

HAL (Le Centre pour la Communication Scientifique Directe), 2018

The role of institutional investors in corporate governance has significantly increased. Many agency theory scholars have even praised the monitoring influence they have or could have on corporations and executive managers. Yet, recently, there have been repeated calls in favour of investor "stewardship". Drawing on a multidisciplinary review and on legal and regulatory materials, this article proposes an exploration of the concept of institutional investor stewardship. We provide a genealogical analysis of institutional investor stewardship that suggests that shareholder stewardship proceeds from the disparity between usual theoretical representations of shareholders and the rising influence of institutional ownership. We make two contributions. First, we contribute to the debate surrounding the role of institutional investors with an analysis of the emergence of renewed standards for institutional investors. Second, we contribute by clarifying the specific representation of shareholders, which was implied in traditional corporate governance models.

Institutional investors have emerged as dominant shareholders in major corporations, exerting significant influence on corporate governance, strategic decision-making, and sustainability practices. This paper explores the role of institutional investors in corporate governance, highlighting their influence, engagement strategies, and the dilemma they face between short-term profit maximization and long-term corporate sustainability. The study also examines challenges associated with institutional ownership, including regulatory concerns, shareholder activism, and proxy advisory firms. The findings underscore the complexities of corporate governance in the modern investment landscape.

2019

Institutional investor activism has received increasing attention for corporate governance scholars and policymakers. The promise of institutional monitoring of corporations has fueled social expectations over institutional investors. In the aftermath of the financial crisis, recent corporate governance rules have attempted to frame and rule institutional investors' corporate governance behavior. We draw upon these rules and legal research to unpack the rationales of these specific expectations. Employing an institutional logics perspective, we map the different logics of responsibility which drive institutional investors' corporate governance behaviors. This help us critically examine the notion of investor stewardship and propose a unified framework for institutional investors' corporate governance responsibilities. First, we argue that the coexistence of contrasted logics creates new sources of conflicts of interests for institutional investors. Second, we remark that...

Corporate Governance, 2004

The paper outlines the problems of conflicts of interest for fiduciary shareholders with respect to the stock of publicly owned companies in their portfolios and considers various approaches proposed to address these problems. The questions of whether fiduciary problems are the result of a vacuum of ownership and an imbalance of power, and the extent to which regulatory reform and shareholder activism can resolve these problems, are examined. From this analysis a framework is developed that describes the sources, outcomes and factors contributing to the effectiveness of conflict management in the context of the current investment environment. A series of recommendations for mediating conflicts of interest by changing board architectures are presented. These recommendations apply principles of participative corporate democracy to the overall governance system.

Oxford Handbooks Online, 2015

This chapter examines the role of institutional investors in corporate governance and whether regulation is likely to encourage them to become active stewards. It considers the lessons that can be learned from the US experience for the EU’s 2014 proposed amendments to the Shareholder Rights Directive. After reviewing how institutional investors fit within the historical evolution of finance, the chapter documents the growth in institutions equity holdings over time. It explains how institutional investors are governed and organize share voting before turning to two competing hypotheses to account for the relative passivity of institutional investors: the excessive regulation and the inadequate incentives hypotheses. In evaluating these hypotheses, it reviews the results of the SEC’s attempt to incentivize mutual funds to vote their shares. The chapter concludes by highlighting the role of hedge funds in catalyzing institutional shareholders, along with some of the risks associated w...

International Journal of Global Business and Competitiveness

The paper examines the role of institutional investors in improving firm-level financial competitiveness by enhancing corporate governance. We employ multiple case study methods to analyze the role of institutional investors in improving firm competitiveness. The study finds traces of institutional activism across different industries and their role in major corporate governance issues. Thus, the study suggests that institutional investors help in improving the corporate governance landscape of the firm, which in turn can impact the firm financial competitiveness. In India, the indicators of the principal-principal dilemma can be mitigated by implementing governance mechanisms such as empowering minority shareholders and increasing institutional investor engagement. Thus, the findings of this study propose changes in the legal framework that would empower institutional investors, primarily by reducing the expropriation of minority shareholders by majority shareholders (concentrated promoters), who could otherwise skew voting outcomes in favor of minority shareholders.

De Gruyter eBooks, 1994

The role of Institutional investors in alleviating the agent problem of management and its valuation effect has been studied extensively in corporate finance. We complement this stream of research by exploring management's control over institutional investors with misaligned objectives, particularly public pension fund, and the consequential valuation effect. We investigate the politic motive of public pension fund's shareholder activism and its impact on the target firms' operational performance, address the control of a strong management on public pension funds' self-serving agenda, and finally we compare the ownership adjustment pattern of public pension funds to other institutional investors to conclude public pension funds' ownership adjustment reflects their private pursuit. The first chapter explores the politic facet and performance effect of shareholder activism sponsored by public pension fund. In this study, we show that having a public pension fund as the leading sponsor of a shareholder proposal significantly improves the proposal's likelihood of being accepted by the target firm. The increased acceptance rate sources from the subset of proposals addressing a social responsibility issue, and targeting firms with weak insider control. An investigation of the public pension board reveals that the board's political profile is the primary determinant of public pension fund's propensity to lead a proposal, and the target firm's acceptance rate. We also assess the performance impact of shareholder proposals. For target firms with strong insider

1. The Problem The study in context to the " Role of Institutional Investors in Corporate Governance in India " has been done to evaluate the active role institutional investors and its elements play in corporate governance activities of companies and if they have any effect over financial feat of relevant companies. In this study, we principally evaluate two questions concerning to the debate: i) Do institutional investors evaluate corporate managers? ii) Are institutional investors fleeting and myopic that grants insufficient incentives to regulate the firm? We examine these questions by evaluating the magnitude to which manager's influence accounting numbers and the attendant market response to such responsibility. Institutional investors, who now own a noteworthy portion of equity in Indian banks, are frequently explained as transient and narrow-minded owners with no incentives to engage themselves in governance. We investigate the strength of this declaration by evaluating whether institutional owners restrain managerial diplomacy by limiting earnings manipulation. Particularly, we examine the relation linking institutional ownership and optional accounting behaviour, as calculated by discretionary accruals. Our conclusions are coherent with institutional evaluating and contradictory with institutional investors motivating narrow-minded management behaviour. 2. The Concept of the Study Institutional investors can be explained as economic entities with large amount of capital to spend; they involve brokers, mutual funds, pension funds, insurance companies, investment banks and endowment funds (Salehi et al., 2011). Their potential impact as huge shareholders was trailed back to 1930 in the division of owners from management of business to be in control of directors when it was primarily initiated by Berle and Means in 1932. This division of ownership was after the agency problem, when managers (agents) might search for their own interest instead of on behalf of the pursuit of shareholders. The conventional view that the dissemination of a firm's share possession has no impact on the value of the firm has been confronted by a vision that can be trailed back to Berle and Means (1932) and Jensen and Meckling (1976). The efficient evaluation theory opposes that the bigger the shareholding of the institutional shareholder, the more effective the evaluation exerted by that shareholder and the more the possibility of dissident success. Institutional investors jointly hold a significant portion of equity capital in the India. As a result, the role of such financers in corporate governance has been the topic of popular discussion in recent years. Former research (e.g., Schleifer and Vishny, 1986; Watts, 1988) and anecdotal proof recommend that institutions can possibly play an active role in evaluating and disciplining managerial judgment. Nevertheless, critics (e.g., Bhide, 1993) claim that institutional participation in corporate governance is bound to be reactive either because of their fragmented or evanescent ownership. Additionally, institutions are characterized as narrow-minded investors who emphasize excessively on current earnings instead of long-term earnings in shaping stock prices (Jacobs, 1991; Porter, 1992). Such a short-term emphasis is liable to deter institutional investors from incurring costs of evaluating managers and leading the firm. In this study, we present empirical facts on the contentious role of institutions in corporate governance by examining i)the relation involving institutional ownership and managers' open behaviour in manipulating accounting incomes, and ii) the pricing inferences of such managerial judgment. The participation of institutions in corporate governance has a straight effect on the agency expenditure ensuing from the disconnection of ownership and control. Agency costs occur from discrepancy of welfare between managers and shareholders Abstract: Thus institutional investors are the organisations which pool large sum of money and invest those sum in different kind of securities, real assets, mutual funds and others. These investors act as highly specialised investors on behalf of others. Typical investor include banks, indemnity companies, retirement or pension stock s, hedge finances, investiture funds advisors and mutual funds. Their role in the economy is to routine as highly specialized investors on behalf of others. The role that the institutional investors can play in the corporate governance system of a company is a controversial question. In this paper you will study the view points of many researchers here. Few believe that the institutional investors must interfere in the corporate governance system of a company; others believe that these investors have other investment objectives to follow. Those who believe that institutional investors need not play a role in the corporate governance system of a company, argue that the investment objectives and the compensation system in the institutional investing companies often discourage their active participation in the corporate governance system of the companies.

Recent corporate India events, particularly in renowned companies such as Tata Sons and Infosys Limited, have shown that institutional investors are becoming increasingly important to foster good governance in India. Sustainable value development by the business and healthy capital markets need good corporate governance. Independent directors, institutional investors and regulators have responsibility of effective and value based corporate governance.This paper addresses corporate governance activism of an institutional investor as Institutional investors become an integral part of the company's corporate management monitoring. However, the level of investor advocacy is influenced by other factors. The objective of this article is to evaluate the role of institutional investors in good governance. It also lists proposals to improve corporate governance-related institutional investor activism.

Corporate Governance, 2003

During the past decade, major governance breakdowns in public limited companies have brought issues of corporate governance to the forefront of debate. As a result, a series of governance codes have been introduced into the UK that have sought to obligate publicly listed companies to certain practices in their overall operations. One of the codes, the Hampel Code, specifically called for an increased role for institutional investors in governance issues. Using financial system theory as a framework for discussion, this paper questions the viability of institutional investors taking a more active role in monitoring and enforcing governance in the UK. It is argued that, if institutional investors choose to increase participation, then it could create anomalies to the efficient operation of the capital markets, involve institutional investors as delegated monitors, increase costs and create free rider problems.