Behind the Scenes: The Corporate Governance Preferences of Institutional Investors

TLDR

Governance mechanisms are complementary, with intervention typically preceding potential exit. The study surveys institutional investors to understand their role in corporate governance. The authors conducted a survey of institutional investors. The survey reveals widespread behind‑the‑scenes intervention and governance‑motivated exit, shows that long‑term and liquidity‑averse investors intervene more, and finds that most investors rely on proxy advisors to inform voting.

Abstract

ABSTRACT We survey institutional investors to better understand their role in the corporate governance of firms. Consistent with a number of theories, we document widespread behind‐the‐scenes intervention as well as governance‐motivated exit. These governance mechanisms are viewed as complementary devices, with intervention typically occurring prior to a potential exit. We further find that long‐term investors and investors that are less concerned about stock liquidity intervene more intensively. Finally, we find that most investors use proxy advisors and believe that the information provided by such advisors improves their own voting decisions.