Role Of Institutional Investors Research Articles

Corporate governance proposals and shareholder activism: the role of institutional investors

We study shareholder proposals across a period of substantial activity and find systematic differences both across sponsor identity and across time. To measure the success of shareholder activism, we examine voting outcomes and short-term market reactions conditioned on proposal type and sponsor identity. The voting analysis documents that sponsor identity, issue type, prior performance and time period are important influences on the voting outcome. Proposals sponsored by institutions or coordinated groups appear to act as substitutes gaining substantially more support than proposals sponsored by individuals. The nature of the stock market reaction, while typically small, varies according to the issue and the sponsor identity.

Interview: The Role of Institutional Investors in Corporate Governance: the case of Standard Life Investments

Interview: The Role of Institutional Investors in Corporate Governance: the case of Standard Life Investments

Corporate Law and Social Norms

Corporate law serves both tofacilitate and to regulate the conduct ofthe corporate enterprise. Insofar as corporate law is regulatory, it provides incen? tives and disincentives to the major actors in the corporate enterprise?direc? tors, officers, and significant shareholders?through the threat of liability. In significant part, however, these actors are motivated not by the desire to avoid liability, but by the prospect of financial gain, on the one hand, and by social norms, on the other. Much work has been done on the way in which these actors are motivated by the threat of liability and the prospect of finan? cial gain, but relatively little work has been done on the operation of social norms. The purpose ofthis Article is to illuminate both corporate law specifi? cally, and the interrelation of law and social norms generally, by studying the ways in which that interrelation operates in the field of corporate law. The Article begins by describing three kinds of social norms?behavioral pat? terns, practices, and obligational norms?and considering the origins and effects of social norms. It then examines the critical role of social norms in several central areas of corporate law: fiduciary duties (specifically, care and loyalty), corporate governance (specifically, board composition and the role of institutional investors), and takeovers.

A survey of corporate perceptions of short-termism among analysts and fund managers

There is a popularly held view that institutional investors and stockbrokers' analysts take a short-term view when making or advising on investment decisions. Short-termism is held to be a particular problem for economies such as the US and the UK which rely heavily on stock exchanges to price securities and help reallocate resources through take-over. This is deemed to be detrimental to long-term corporate development and overall economic growth. The paper seeks to show the extent to which directors of large UK companies perceive that analysts and institutional investors evaluate their companies on short-term criteria. The role of institutional investors in the context of short-termism is important because they own a large proportion of equity. The paper then seeks to explain why some company directors appear to believe in short-termism while others do not. Hence the paper is not investigating whether ‘the City’ is short-termist but is examining the reasons why directors of large publicly quoted companies believe ‘the City’ is or is not short-termist about their company. The conclusion of this paper is that there is some evidence to support the view that ‘the City’ is perceived as being short-termist towards some companies but that the phenomenon is more narrowly focused and of lesser importance than its supporters claim.

The Role of Institutional Investors in Corporate Governance: An Empirical Investigation

The Role of Institutional Investors in Corporate Governance: An Empirical Investigation

Comment on ‘Top Management Compensation and the Structure of the Board of Directors in Commercial Banks’

As argued by Jensen (1993), the primary tasks of a firm’s board of directors are to advise, hire, fire and determine the level and form of managerial compensation. Managerial pay can be structured as part cash and in part be tied to a performance index, such as corporate earnings or the firm’s stock price. The latter effectively aligns the interest of managers with those of stockholders, which in turn reduces agency problems related to free cash flow, managerial time horizons and effort levels. At the same time, stock-based compensation increases managerial exposure to non-diversifiable risk, which may cause risk-averse managers to underinvest in risky projects. The trade-off between the benefits of managerial incentive alignment and the cost of underinvestment is largely an empirical issue, and the widespread observation that managerial compensation is primarily paid in cash 1 suggests that managerial risk aversion weighs heavily or that boards generally resort to substitute monitoring mechanisms. The paper by Angbazo and Narayanan (1997) is part of a rapidly growing empirical literature attempting to identify important cross-sectional determinants of the form of executive compensation. Motivated in particular by the early work of Fama (1980) and Fama and Jensen (1983), this literature conjectures that executive pay is not only motivated by manager‐shareholder incentive alignment and risk preferences, but also by the workings of the firm’s corporate governance structure. This literature recognizes that the board of directors is an imperfect agent for shareholders, as board members have their own private incentives and struggle with informational asymmetries vis-` the top management, all of which affects the board’s monitoring effectiveness. As discussed below, this view suggests that factors such as board size, board longevity (tenure), the proportion of the board consisting of independent or outside directors, whether the CEO is also chairman of the board, the role of institutional investors as board members, etc., along with 1 See, e.g., Jensen and Murphy (1990), Holthausen and Larcker (1993), and Hwang and Anderson

PRICE PRESSURE AND THE ROLE OF INSTITUTIONAL INVESTORS IN CLOSED‐END FUNDS

AbstractA trader‐identified transactions database is employed to investigate: (1) the relation between order‐flow imbalance and closed‐end fund share prices and discounts; and (2) the role of institutional investors in closed‐end funds. Empirical results are consistent with the hypothesis that buyers (sellers) of closed‐end funds face upward‐downward‐) sloping supply (demand) curves. The results also demonstrate that ownership statistics do not accurately reflect institutional investors' importance in the closed‐end fund market. The results fail to provide evidence that institutional investors offset the positions of individual investors or that institutional investors face systematic “noise trader risk.”

Deterrence of Corporate Fraud through Securities Litigation: The Role of Institutional Investors

Securities class action lawsuits just might be the schizophrenic stepchildren of our civil litigation system. They are expected to serve two masters at the same time. The first is the goal of obtaining compensation for wronged investors who have suffered losses at the hands of corporate wrongdoers. The second is filling the role of private attorneys general to sanction violators and deter future misconduct.2 There is often a tension between these two masters. Approaches that provide the most effective deterrence of future fraud may not necessarily provide the largest loss recovery.

International Capital Flows in the 1990s: The Role of Institutional Investors

An abstract is not available for this content so a preview has been provided. Please use the Get access link above for information on how to access this content.

The Day-of-the-Week Anomaly: The Role of Institutional Investors

Studies have suggested that individual investor behavior is the primary cause of the weekend effect. This examination of differences in the daily returns of securities held primarily by individual investors versus securities held by institutional investors indicates that institutional behavior is the primary source of day-of-the-week return differences. Day-of-the-week patterns in returns and volumes are more pronounced in securities in which institutional investors play a greater role.

Institutional Ownership of Publicly Traded U.S. Newspaper Companies

I explore the role of institutional investors in public newspaper companies. Analyses revealed that institutions own shares in all 17 of the companies under study and are the primary owners of half of the companies. Results also revealed that there is significant cross-ownership of companies by these investors. I argue that various degrees and forms of institutional ownership create different potential for influence by the institutional investors, discuss means of assessing this potential, and show that at least 5 of the newspaper firms examined produce multiple-warning signals of potential influence.

Shark repellents and the role of institutional investors in corporate governance

AbstractThis paper examines the role of institutional shareholders in monitoring managers when they propose antitakeover charter amendments (shark repellents). These proposals provide a rare opportunity to examine this issue since they can be adopted only by shareholder approval. We document a positive relationship between the ownership of institutional shareholders and the stock market reaction to the announcement of antitakeover amendments. This finding is consistent with the Demsetz (1983) and Shleifer and Vishny (1986) proposition that large blockholders reduce the free‐rider problem associated with monitoring managers.

Shark Repellents and Managerial Myopia: An Empirical Test

Since the proxy fights of the 1950s, commentators have debated the welfare implications of corporate takeovers. Although observers such as Manne (1965), Jensen and Meckling (1976), Fama (1980), and Jensen and Ruback (1983) argue that the market for corporate control promotes efficiency and enhances wealth, some critics, such as managers of firms subject to hostile takeover attempts, contend that takeovers destroy firm value. The critics frequently assert that takeover pressure forces managers to sacrifice profitable, but slowyielding, long-term investments in favor of less productive short-term investments that offer immediate returns. While the evidence supporting takeover-induced shortsightedness is largely anecdotal, a recent paper by Stein (1988) develops a formal

Take-overs: Unlocking corporate value

Within the framework of a continuing boom in mergers and acquisitions in the UK, Ian Tonks examines the spectacular bid by Hoylake Investments for BAT (British-American Tobacco). As well as being a case study of a very large take-over bid, he brings out the implications for merger policy, and looks at the motives for mergers, competition in the Single European Market, the use of junk bonds to finance take-overs, and the role of institutional investors, and regulatory powers.

Cumulative Voting: The Value of Minority Shareholder Voting Rights

W HEN investors purchase shares of common stock, they typically acquire the right to vote in the election of the firm's board of directors and on other major issues facing the corporation. In most corporations board members are elected through "straight voting." In straight voting each shareholder is entitled to cast votes equal to the number of shares held for each director position. If a group controls 51 percent of the vote, it can elect the entire board of directors by casting all of its votes for the candidate that it favors for each position. Some firms do not use straight voting but elect their board members through "cumulative voting" instead. In cumulative voting each share entitles the shareholder to as many votes as there are directors to be elected. A shareholder may cast all votes for a single candidate or distribute them among more than one nominee. With cumulative voting it may be possible for minority shareholders to elect some board members even if the majority of shareholders oppose their election. To elect these directors, the minority shareholders would cumu-

Is the Stock Market Getting More Stable?

M A UCH STRESS HAS BEEN PLACED on the increasing importance of constant, and constantly growing, institutional investment as a factor in keeping up the level of stock prices. Less attention has been devoted to the role of institutional investors as a stabilizing force in the stock market-on the down side as well as the up side. Indeed, is it a fact that the stock market is getting more stable? If it is, what other factors besides the growing importance of institutional investors are responsible for this trend? This article attempts to give some answers to these questions.