We use survey methodology to provide insights into the corporate governance preferences and actions of institutional investors. We focus on the two active choices investors have when they are unhappy with a firm: exit and voice. Guided by theoretical models and previous empirical evidence, we develop survey questions that directly assess institutional investors’ preferences and actions.

Such knowledge can be captured only with a survey methodology. Thus, our survey allows us to validate existing theories and inferences made from indirect empirical tests of shareholders’ preferences and actions regarding corporate governance. Most importantly, through the survey we find institutional investors’ preferences and actions to be largely consistent with the theoretical literature.

Our survey shows that institutional investors such as our respondents frequently employ voice in their shareholder engagements. The most common engagement channels are behind‐the‐scenes discussions with management and boards of directors. Nevertheless, we find that investors still face several engagement impediments, principally because of liquidity concerns, free rider problems, and legal concerns. In addition, we show that investor horizon matters for engagement. First, longterm investors intervene more intensively than short‐term investors. Second, engagements are primarily triggered by concerns over a firm’s corporate governance or strategy rather than over short‐term issues.

We then show that more than 40% of our respondents report that they believe the exit threat disciplines management. The effectiveness of this threat depends, according to our survey results, on investors’ equity stake size, whether other investors also exit for the same reason, managerial equity ownership, and whether other large shareholders are also present. Moreover, exit and voice are related, as the surveyed investors believe that both governance mechanisms are complementary strategies.

Finally, we shed light on the controversial role of the proxy advisor, which has been a concern for many. Our survey responses indicate that proxy advisors do not just aggregate shareholder preferences or coincide with them, but actually influence voting in a positive way because of the information provided.


By: Joseph A. McCahery, Tilburg University – School of Law; European Banking Center (EBC); Tilburg Law and Economics Center (TILEC); European Corporate Governance Institute (ECGI),

Zacharias Sautner, Frankfurt School of Finance & Management gemeinnützige GmbH, and Laura T. Starks, University of Texas at Austin – Department of Finance


Read the full SSRN article here