Institutional Investors: A Literature Review

Abstract

We survey the related theories and burgeoning literature on the consequences of institutional investors’ holdings and shareholder activism campaigns. Agency theory, monitoring theory, and limited attention theory are widely used in institutional investors studies. About the economic consequences of institutional investors’ holdings, we summarize that institutional holdings could improve corporate disclosure quality and frequency, for both mandatory and voluntary information disclosure. Additionally, higher ownership concentration of institutional investors is related to higher performance sensitivity of management compensation and lower compensation level. Furthermore, we propose that investor holdings could also affect dividend policy, firm performance and firm innovation. Lastly, we further discussed about shareholder activism campaign. We find that shareholder activism has both positive effect on firm performance and corporate governance, and negative side on executives and threats of exit.

Keywords

• institutional investors
• agency theory
• shareholder activism