In What Contexts Institutional Investors Can Be Catalyst? The Moderating Role of Corporate Governance

Abstract

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.