Finance Papers

Document Type

Journal Article

Date of this Version

7-2016

Publication Source

Journal of Financial Economics

Volume

121

Issue

1

Start Page

111

Last Page

141

DOI

10.1016/j.jfineco.2016.03.003

Abstract

Passive institutional investors are an increasingly important component of U.S. stock ownership. To examine whether and by which mechanisms passive investors influence firms' governance, we exploit variation in ownership by passive mutual funds associated with stock assignments to the Russell 1000 and 2000 indexes. Our findings suggest that passive mutual funds influence firms' governance choices, resulting in more independent directors, removal of takeover defenses, and more equal voting rights. Passive investors appear to exert influence through their large voting blocs, and consistent with the observed governance differences increasing firm value, passive ownership is associated with improvements in firms’ longer-term performance.

Copyright/Permission Statement

© 2016. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/

Keywords

corporate governance, institutional ownership, passive funds, performance

Embargo Date

3-26-2019

Available for download on Tuesday, March 26, 2019

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Date Posted: 27 November 2017

This document has been peer reviewed.