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Problems and Limitations of Institutional Investor Participation in Corporate Governance

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  • Robert Webb
  • Matthias Beck
  • Roddy McKinnon

Abstract

During the past decade, major governance breakdowns in public limited companies have brought issues of corporate governance to the forefront of debate. As a result, a series of governance codes have been introduced into the UK that have sought to obligate publicly listed companies to certain practices in their overall operations. One of the codes, the Hampel Code, specifically called for an increased role for institutional investors in governance issues. Using financial system theory as a framework for discussion, this paper questions the viability of institutional investors taking a more active role in monitoring and enforcing governance in the UK. It is argued that, if institutional investors choose to increase participation, then it could create anomalies to the efficient operation of the capital markets, involve institutional investors as delegated monitors, increase costs and create free rider problems.

Suggested Citation

  • Robert Webb & Matthias Beck & Roddy McKinnon, 2003. "Problems and Limitations of Institutional Investor Participation in Corporate Governance," Corporate Governance: An International Review, Wiley Blackwell, vol. 11(1), pages 65-73, January.
    • Handle: RePEc:bla:corgov:v:11:y:2003:i:1:p:65-73
    DOI: 10.1111/1467-8683.00302
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    References listed on IDEAS

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    1. Miles, David, 1993. "Testing for Short Termisn in the UK Stock Market," Economic Journal, Royal Economic Society, vol. 103(421), pages 1379-1396, November.
    2. Ross Levine, 2000. "Are bank-based or market-based financial systems better?," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 3(1), pages 25-55, April.
    3. Franklin Allen & Douglas Gale, 2001. "Comparative Financial Systems: A Survey," Center for Financial Institutions Working Papers 01-15, Wharton School Center for Financial Institutions, University of Pennsylvania.
    4. Vittas, Dimitri, 1998. "Institutional investors and securities markets : which comes first?," Policy Research Working Paper Series 2032, The World Bank.
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    Citations

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    Cited by:

    1. Elsayed, Khaled & Wahba, Hayam, 2013. "Reinvestigating the relationship between ownership structure and inventory management: A corporate governanceperspective," International Journal of Production Economics, Elsevier, vol. 143(1), pages 207-218.
    2. Rachelle Belinga & Blanche Segrestin, 2019. "A conceptual mapping of the logics of institutional investors' corporate governance responsibilities: The case for "custodian" investor stewardship," Post-Print hal-02444756, HAL.
    3. Hutchinson, Marion & Seamer, Michael & Chapple, Larelle (Ellie), 2015. "Institutional Investors, Risk/Performance and Corporate Governance," The International Journal of Accounting, Elsevier, vol. 50(1), pages 31-52.
    4. Darren Henry, 2008. "Corporate Governance Structure and the Valuation of Australian Firms: Is There Value in Ticking the Boxes?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 35(7‐8), pages 912-942, September.
    5. Tokbolat, Yerzhan & Le, Hang & Thompson, Steve, 2021. "Corporate diversification, refocusing and shareholder voting," International Review of Financial Analysis, Elsevier, vol. 78(C).
    6. Rachelle Belinga & Blanche Segrestin, 2019. "A conceptual mapping of the logics of institutional investors' corporate governance responsibilities: The case for "custodian" investor stewardship," Post-Print hal-02167819, HAL.
    7. Breuer, Wolfgang & Trauzettel, Till & Müller, Torbjörn & Salzmann, Astrid, 2024. "An International Perspective on Corporate Social Responsibility, Investor Time Preferences, and Cost of Equity," International Business Review, Elsevier, vol. 33(1).
    8. Piet Eichholtz & Nils Kok & Roger Otten, 2008. "Executive Compensation in UK Property Companies," The Journal of Real Estate Finance and Economics, Springer, vol. 36(4), pages 405-426, May.
    9. Johan Henningsson, 2008. "Does SEE information make a difference to fund managers?," Sustainable Development, John Wiley & Sons, Ltd., vol. 16(3), pages 169-179.
    10. Danny Yeung, 2012. "The Impact of Institutional Ownership: A Study of the Australian Equity Market," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 11, July-Dece.
    11. Chung, Chune Young & Wang, Kainan, 2014. "Do institutional investors monitor management? Evidence from the relationship between institutional ownership and capital structure," The North American Journal of Economics and Finance, Elsevier, vol. 30(C), pages 203-233.
    12. repec:bla:jomstd:v:47:y:2010:i:s2:p:1590-1613 is not listed on IDEAS
    13. Henry, Darren, 2010. "Agency costs, ownership structure and corporate governance compliance: A private contracting perspective," Pacific-Basin Finance Journal, Elsevier, vol. 18(1), pages 24-46, January.
    14. Ying Schwarte & Ping He, 2024. "The effects of institutional investors and munificence on board chair orientations," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 28(4), pages 1049-1077, December.

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