The Role of Institutional Investors in Curbing Corporate Short-Termism

Abstract

Institutional investors are the majority owners of most publicly traded companies but allow activist hedge funds with smaller positions to push through corporate changes. The author offers various reasons why institutional investors may be reluctant to actively participate in proxy fights but then suggests several practical forms of investor engagement that support long-term value creation. So, in future campaigns by hedge funds, institutional investors should actively participate to ensure that the outcome promotes long-term growth instead of temporary price spurts.