Publications
Publications
- 2015
- Research Handbook on Shareholder Power
Thirty Years of Evolution in the Roles of Institutional Investors in Corporate Governance
By: John C. Coates
Abstract
This chapter presents evidence that shifts in the composition and roles of institutions have been at least as important, if not more so, than aggregate increases in institutional ownership. Over the past 30 years, institutions have come to play more varied roles in governance, due to increased specialization in institutional forms and functions, and particularly an increase in "layers” of institutions—namely, institutions owning institutions. Increased shareholder power has been driven less by concentration (which would imply a general increase in institutional shareholder power) than by market-driven improvements in the technology of activism, growth in the number and sophistication of institutional investor agents, and increased complexity in the relationships among institutions (all of which imply that some institutions have important roles in governance, while others do not). The sharpest increases in institutional ownership have been at the extremes of institutional activism, from the least active (index firms and exchange-traded funds (ETFs)) to the most active (private equity (PE) funds and hedge funds). Older institutional forms (pension funds, non-indexed mutual funds, and insurance companies) have deepened and broadened their ownership of US public companies, shifting from large-cap liquid companies where dispersion is severe, to smaller-cap companies where ownership structures are more likely to prevent even the most active institutions from exerting more than a modest direct influence through normal shareholder governance channels.
Citation
Coates, John C. "Thirty Years of Evolution in the Roles of Institutional Investors in Corporate Governance." In Research Handbook on Shareholder Power, edited by Jennifer Hill and Randall Thomas, 79–98. Edward Elgar Publishing, 2015.