Institutional Investors and Corporate Governance

We provide a comprehensive overview of the role of institutional investors in

corporate governance with three main components. First, we establish new stylized

facts documenting the evolution and importance of institutional ownership.

Second, we provide a detailed characterization of key aspects of the legal and

regulatory setting within which institutional investors govern portfolio firms. Third,

we synthesize the evolving response of the recent theoretical and empirical academic

literature in finance to the emergence of institutional investors in corporate

governance. We highlight how the defining aspect of institutional investors – the

fact that they are financial intermediaries – differentiates them in their governance

role from standard principal blockholders. Further, not all institutional investors

are identical, and we pay close attention to heterogeneity amongst institutional

investors as blockholders.