Can Institutional Investors Improve Corporate Governance Through Collective Action?

The Impact of Investor Horizon on Say-on-Pay Voting

“…Our study also contributes to the wider literature on the role of investment horizons on firm decision-making. Our finding of long-term shareholder support for board remuneration proposals through positive voting is consistent with and extends the findings presented in Dong and Ozkan (2008), Doidge et al (2014) and McCahery et al (2015) on such shareholders' effective monitoring role within the firm. Moreover, our result that short-term institutional investors are more likely to cast an abstaining vote is consistent with their lack of monitoring incentives within the firm.…”

“…These shareholders make such a decision arguably because the perceived benefits from monitoring supersede the costs associated with this course of action (Maug, 1998;Shleifer and Vishny, 1986). As a result, the existence of long-term shareholders promotes the efficiency of corporate governance within a firm (Doidge et al, 2014;McCahery et al, 2015). Consistent with these studies, Dong and Ozkan (2008) show that long-term shareholders improve the efficiency of executive pay contracts by having a positive impact on pay-performance sensitivity.…”

“…Since any benefits associated with monitoring are typically expected to materialize in the medium to long term, shareholders with long-term investment horizons are the ones expected to bear those costs (Doidge, Dyck, Mahmudi and Virani, 2014;McCahery, Sautner and Starks, 2015). On the other hand, short-term investors will rationally avoid monitoring, or in other words will not engage with their firms.…”

Governance and Stakeholders

“…The rise in the influence of institutions occurred earlier in the United Kingdom than elsewhere, and perhaps explains that country's courts and governments largely restricting officers' and directors' fiduciary duty to shareholders (Stout 2013). A similar transformation is occurring in Canada (Doidge et al 2015). In contrast, institutional investors, except for banks (whose primary interests are as creditors), remain minor players in Germany and Japan.…”

Business Groups in Canada: Their Rise and Fall, and Rise and Fall Again

“…More recently, federal and provincial government social security programs and public sector pension plans, having boosted contributions to become "substantially funded", are joining private equity deals in a new wave of LBOs. Some of these public sector investment funds also show signs of becoming corporate governance activists in listed firms (Doidge et al 2015). Conceivably, these funds might develop into state-run business groups along the lines of Italy's Istituto per la Ricostruzione Industriale (Aganin and Volpin 2005).…”