Institutional Investor Heterogeneity: Implications for Strategic Decisions

Sherman, Hugh D.; Beldona, Sam; Joshi, Maheshkumar P.

doi:10.1111/1467-8683.00101

Cited by 38 publications

(31 citation statements)

References 13 publications

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“…Sherman et al . (1998) perform ordinary least squares (OLS) regressions using data from a sample of 271 US Fortune 500 firms for the years 1990, 1991 and 1992, and distinguish four types of firms’ institutional investors (pension funds, mutual funds, banks and insurance companies).…”

Section: Corporate Ownershipmentioning

confidence: 83%

Corporate Governance and Innovation: A Survey

Belloc

2011

Journal of Economic Surveys

207

114

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The traditional economics of innovation, inspired by Schumpeter and more recent advances on his work, seem unable to explain why firms with similar external conditions may show greatly different performance in innovation. Contrastingly, the literature on corporate governance provides some useful insights for understanding corporate innovation activity, to the extent that such literature examines the economic effects of different modes of coordination between firm members. The process through which individuals integrate their human and physical resources within the firm is central to the dynamics of corporate innovation. This paper provides the first survey of the literature on this issue. We start by discussing how various theoretical approaches to the analysis of the firm deal with technological innovation. We then describe three main channels -corporate ownership, corporate finance and labour -through which a system of corporate governance shapes a firm's innovation activity. Finally, we examine the relationship between country-level institutional settings, national patterns of corporate governance and the aggregate innovation activity of corporations. We conclude by suggesting that future research should focus more deeply on the interrelation between the various dimensions of corporate governance and on their joint effect on firm innovation.

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Section: Corporate Ownershipmentioning

confidence: 83%

Corporate Governance and Innovation: A Survey

Belloc

2011

Journal of Economic Surveys

207

114

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“…Previously their perspective was short‐term, favoring short‐term returns and low risks (Baysinger et al ., 1991). But the growth of institutional investments, which constitutes the most important trend in contemporary global financial markets (Johnson, Daily and Ellstrand, 1996; Sherman and Joshi, 1998; Gillan and Stark, 2003), has limited their ability to actively trade a large number of their shares, because of the effect of large trades on share prices and therefore capital gains (Webb, Beck and McKinnon, 2003). As dominant investors, they are able to influence the operations of the corporation.…”

Section: Review Of Literature and Hypothesis Developmentmentioning

confidence: 99%

“…As dominant investors, they are able to influence the operations of the corporation. With longer‐term interests, their perspective is no longer distinct from that of smaller shareholders (Sherman and Joshi, 1998; Webb et al ., 2003). For these reasons, recent studies have described them as the key to solving the agency problem between shareholders and managers.…”

Section: Review Of Literature and Hypothesis Developmentmentioning

confidence: 99%

The Link Between Board Composition and Corporate Diversification in Australian Corporations

Chen

Dyball

Wright

2009

Corporate Governance

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Manuscript Type: EmpiricalResearch Question/Issue: This study investigates the association between the composition of the board of directors and corporate diversification, to explore the role of the board in corporate strategic choice. Research Findings/Results: Based on a sample of 101 Australian publicly listed firms in 2005, this study finds that there is no link between corporate decisions on product and/or geographic diversification and two aspects of board compositionboard independence and institutional representation. However, there is a positive link between total diversification and a third aspect of board composition -the proportion of directors who have ties to boards of corporations in other industries. Theoretical Implications: The results provide support for the managerial hegemony and the resource dependency theories. Corporate strategic decisions regarding diversification are more likely to be made by management than boards of directors, and to be encouraged by interlocking directors with extra-industry ties. Practical Implications: Contrary to the requirement or recommendation in many jurisdictions that boards be more independent, these results indicate that shareholders' interests, represented by lower levels of diversification, are not promoted under such circumstances. Interlocking directors appear to effectively link the corporation to the external business environment and to encourage diversification. Existing recommendations and regulations to align management with shareholders' interests through independent boards should be revised. Board composition should also consider directors' knowledge, relevant expertise, availability, and length of tenure.

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“…Managerialist and agency perspectives suggest that top executives have incentives to pursue product market diversification beyond the level at which shareholder wealth is maximized (Amihud andLev, 1981, 1999;Hill and Snell, 1989;Pound, 1993;Denis and Sarin, 1999). Accordingly, the level of diversification is thought to depend on the coercive power of shareholders to force strategic change: management theorists have hypothesized that powerful institutional investors will pressure corporate leaders to limit or reduce the level of corporate diversification, but empirical evidence on the relationship between institutional ownership and diversification is mixed (Hill and Hansen, 1991;Bergh, 1995;Sherman, Beldona, and Joshi, 1998;McDonald and Westphal, 2003). Corporate diversification alleviates these financial and career risks by stabilizing corporate earnings.…”

Section: Pacification Of Investorsmentioning

confidence: 99%

The Pacification of Institutional Investors

Westphal

Bednar

2008

Administrative Science Quarterly

129

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A large-scale survey of U.S. top executives and fund managers is used to examine how executives may use interpersonal influence behavior to prevent powerful institutional investors from using their coercive power to force changes in corporate governance and strategy. We theorize that high levels of institutional ownership may prompt CEOs to engage in interpersonal influence behavior in the form of ingratiation and persuasion directed at institutional fund managers, which deters them from using their ownership power to coerce changes that could benefit shareholders at the expense of top management. The results support our theory, indicating that CEOs' ingratiation and persuasion tactics toward institutional fund managers reduce the effect of institutional ownership on specific changes in board structure and composition, CEO compensation, and corporate strategy that are believed to compromise management's interests. Our theory and findings suggest the importance of considering how interpersonal influence processes can provide an alternative source of influence in relationships between corporate leaders and external constituents.

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Institutional Investor Heterogeneity: Implications for Strategic Decisions

Cited by 38 publications

References 13 publications

Corporate Governance and Innovation: A Survey

Corporate Governance and Innovation: A Survey

The Link Between Board Composition and Corporate Diversification in Australian Corporations

The Pacification of Institutional Investors

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