Date of this Version
Journal of Financial Economics
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.
© 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/
corporate governance, institutional ownership, passive funds, performance
Appel, I. R., Gormley, T. A., & Keim, D. B. (2016). Passive Investors, Not Passive Owners. Journal of Financial Economics, 121 (1), 111-141. http://dx.doi.org/10.1016/j.jfineco.2016.03.003
Date Posted: 27 November 2017
This document has been peer reviewed.