Passive investors, not passive owners

Ian R. Appel, Todd A. Gormley and Donald B. Keim

Journal of Financial Economics, 2016, vol. 121, issue 1, 111-141

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.

Keywords: Corporate governance; Institutional ownership; Passive funds; Performance (search for similar items in EconPapers)
JEL-codes: D22 G23 G30 G34 G35 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (238)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:121:y:2016:i:1:p:111-141

DOI: 10.1016/j.jfineco.2016.03.003

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