Does Governance Travel around the World? Evidence from Institutional Investors

Does Governance Travel around the World? Evidence from Institutional Investors

Reena Aggarwal, Isil Erel, Miguel Ferreira, Pedro Matos

Series number :

Serial Number: 

Date posted :

January 01 2010

Last revised :

October 24 2018
SSRN Share


  • institutional investors • 
  • Corporate governance • 
  • shareholder activism

We examine whether institutional investors affect corporate governance by analyzing portfolio holdings of institutions in companies from 23 countries during the period 2003-2008. We find that firm-level governance is positively associated with international institutional investment.

Changes in institutional ownership over time positively affect subsequent changes in firm-level governance, but the opposite is not true. Foreign institutions and institutions from countries with strong shareholder protection play a crucial role in promoting governance improvements outside of the U.S. Institutional investors affect not only which corporate governance mechanisms are in place, but also outcomes. Firms with higher institutional ownership are more likely to terminate poorly performing CEOs and exhibit improvements in valuation over time. Our results suggest that international portfolio investment by institutional investors promote good corporate governance practices around the world.

Published in

Published in: 
Fisher College of Business Working Paper No. 2009-008 | AFA 2010 Atlanta Meetings Paper | Fourth Singapore International Conference on Finance 2010 Paper | CELS 2009 4th Annual Conference on Empirical Legal Studies Paper


Real name:
Research Member
Darden School of Business, University of Virginia