Corporate Governance and Institutional Investors: Why are They Important?

The goal of this paper is to analyze the involvement of institutional investors in the corporate governance of companies in their portfolio by analyzing characteristics of institutional investors concerning the type of investment, investment time horizon, and degree of involvement in the process of managing a company. Starting from the deductive approach, the method of description, compilation, and classification is applied in this review paper, which describes and groups the previous theoretical and empirical research. Main findings indicate that institutional investors are involved in the corporate governance of their portfolio companies and that control mechanisms they use include voting rights at general assembly meetings, direct communication with the management to discuss strategies for future development, and collaboration with other institutional investors in the ownership structure. The theoretical contribution of this paper is an extensive, critical, and systematic review of existing theoretical and empirical findings from the domain dealing with the impact of institutional investors on the corporate governance of companies, and identifying key future opportunities to advance knowledge in this field.