Institutional investors and corporate governance

Abstract

The growing dominance of equity holdings by institutional investors, both domestic and international, is casting a sharp focus on their activities and owners and monitors of firms. It is suggested that whereas some general considerations arise in all cases, it is useful to separate discussion of the developments in the Anglo Saxon countries and continental Europe/Japan. The former is showing an increase in direct influence of institutions in place of the previous reliance on the takeover mechanism to discipline managers. This has arguably led to improved corporate performance. The latter remain more firmly in the bank-relationship based governance paradigm. On the other hand, such differences should not be exaggerated, and some convergence is discernible on a modified form of the Anglo Saxon paradigm where institutions are the primary actors in corporate governance generally. In Europe, EMU will provide a major spur to such convergence.