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Corporate Governance Matters: A Closer Look at Organizational Choices and Their Consequences by Brian Tayan, David Larcker

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12. Institutional Shareholders and Activist Investors

Despite their ownership positions, institutional investors have only indirect influence on company affairs. The majority of their influence must be exerted through the board of directors, whom they elect to govern on their behalf. However, institutional shareholders can still be powerful: They can communicate their opinions directly to management and the board. If the response they receive is not satisfactory, they can seek to have directors removed, vote against proxy proposals sponsored by management, put forth their own proxy measures, or express their dissatisfaction by selling their shares (“voting with their feet”).

In this chapter, we review these points in detail. We examine the broad ...

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