The Role of Institutional Investors in International Corporate Governance: Contemporary Paradigms and Perspectives

• Published date: 01 March 2022
• Date: 01 March 2022
• DOI: http://doi.org/10.1111/corg.12438

Call for Papers

Corporate Governance: An International Review

Special Issue on

“The Role of Institutional Investors in International Corporate Governance:

Contemporary Paradigms and Perspectives”

Special Issue Submission Deadline: August 31, 2022

Guest Editors

Wolfgang Drobetz, University of Hamburg, Germany

Sadok El Ghoul, University of Alberta, Canada

Omrane Guedhami, University of South Carolina, USA

BACKGROUND

The massive growth of the global asset management industry in recent decades has led

to a large-scale intermediation of equity ownership (Ben-David et al., 2021; Dasgupta,

Fos, & Sautner, 2021). As a result, institutional investors are ubiquitous nowadays;

virtually every corporation of every size in every country has them in its ownership base.

The rise of institutional investors resulted in an increase in ownership concentration in

publicly listed corporations and has transformed the corporate governance landscape

(Bebchuk, Cohen, & Hirst, 2017). Financial globalization makes it imperative to analyze

the growing corporate governance role of institutional investors, including mutual funds,

exchange-traded funds (ETFs), public and private pension funds, insurance companies,

and hedge funds.

As Döring et al. (2021) document, more than 70% of the equity of U.S. corporations was

held by institutional investors at the end of 2015. Institutional ownership outside the U.S.

is considerably smaller, but in many countries it exceeds 15% (as a fraction of total market

capitalization). Moreover, firms usually have several blockholders with the potential to

play an active role in corporate governance. While the small blocks that institutional

investors typically hold can impact corporate governance mechanisms, multiple

institutional investors may engage in a coordinated manner in target firms. The relatively

small individual blocks can collectively play an even more important role in affecting firms’

governance outcomes in various ways (Bushee, 1998; Edmans & Manso, 2011;

Schnatterly & Johnson, 2014; Gantchev & Jotikasthira, 2018; Glaum, Landsman, &

Wyrwa, 2018; Lee, Park, & Folta, 2018; Crane, Koch, & Michenaud, 2019; Cvijanović,

Dasgupta, & Zachariadis, 2021). Taking a different perspective, Bebchuk et al. (2017)

argue that some institutional investors (e.g., index funds) can increase agency problems

because of the separation between investment managers and their beneficial investors.

This may prevent full realization of the benefits of concentrated shareholding, which in

turn can have adverse effects on corporate governance.

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