How Institutional Investor Objectives Affect Firm Valuation and Governance

Over the last 30 years, institutional investors have dramatically increased their stakes in U.S. companies. In the 1980s, they held approximately 20 percent to 30 percent of the average firm in the U.S. By 2010, they held over 65 percent. This increase in institutional holdings coincides with the growing complexity of markets and importance of corporate governance. Prior research has focused on the different effects on firms of the informed “smart money” of the institutional investor in contrast to the less sophisticated individual “retail” investor. Yet, as SEC Commissioner Luis Aguilar said in a recent speech, “Institutional investors are not … Read more