Title: Active institutional investors and the board of directors

Authors: Tongyu Cao, Ray Donnelly

Addresses: Accounting and Finance, College of Business and Law, University College Cork, Western Road, Cork, Ireland. ' Accounting and Finance, College of Business and Law, University College Cork, Western Road, Cork, Ireland

Abstract: The present research examines the role of activist institutional investors in the formation of the board of directors. Activist institutional investors, such as pension funds, have a long term investment perspective and are independent of the firms in which they hold significant stakes. This study finds that pension fund ownership is associated with boards that are more independent of management and have more balanced compositions. The strongest results pertain to an overall board quality index reflecting board efficiency, board leadership, board independence and balance. The finding that activist institutional investors influence the board vindicates the efforts of regulators to encourage institutional investors to be active in terms of corporate governance.

Keywords: corporate governance; board structure; non-executive directors; independent directors; pension funds; institutional investors; activists; active investors; long term investments; stakeholders; fund ownership; balanced compositions; quality indexes; efficiency; leadership; independence; balance; business governance.

DOI: 10.1504/IJBGE.2010.035602

International Journal of Business Governance and Ethics, 2010 Vol.5 No.4, pp.301 - 322

Published online: 01 Oct 2010 *

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