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A Comparative Analysis of the Legal Obstacles to Institutional Investor Activism in Europe and in the US

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Author Info
Santella, Paolo
Baffi, Enrico
Drago, Carlo
Lattuca, Dino

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Abstract

Starting from the observation that at the multilateral level shareholder activism is considered as an important aspect of good corporate governance, this paper examines several legal and economic obstacles to institutional investor activism in the EU and in the US. We also examine the voting record of 76 institutional investors in the US and of several others in the EU. We find that US investors seem to have easier access to proxy voting than in the EU (although recent EU legislation should remove several of the present legal obstacles); that conflicts of interest seem to limit the activism of several categories of institutional investors both in the US and in the EU; that some national legislations limit the ability of institutional investors to coordinate their voting policies; and that recourse to stock lending and other forms of separation of financial risk from voting rights seems to be practiced more by controlling shareholders at the expense of institutional investors than the opposite. We also find that institutional investors in the US seem to have a more adversarial voting pattern vis-à-vis company managements than in the UK; this might be due to the fewer voting rights given to shareholders by the US regulatory framework. As for Europe, institutional investors' voting pattern is by far the most adversarial in France, where there is a high incidence of control-enhancing mechanisms. Institutional investors seem to have an adversarial voting stance also in Greece, Belgium and Sweden, where control-enhancing mechanisms are also present, while in Italy they tend to have a low voting turnout. More in general, EU investors’ voting pattern seems to be sensitive to the presence of control-enhancing mechanisms, ownership concentration, and to the origin of the national legal system.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 8929.

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Date of creation: 26 May 2008
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Handle: RePEc:pra:mprapa:8929

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Related research
Keywords: Shareholder activism shareholder voting proxy voting acting in concert securities lending institutional investors legal origins control-enhancing mechanisms corporate governance ownership concentration

Find related papers by JEL classification:
K2 - Law and Economics - - Regulation and Business Law
G2 - Financial Economics - - Financial Institutions and Services
G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
G3 - Financial Economics - - Corporate Finance and Governance
G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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  1. Klepper, Steven & Simons, Kenneth L, 1997. "Technological Extinctions of Industrial Firms: An Inquiry into Their Nature and Causes," Industrial and Corporate Change, Oxford University Press, vol. 6(2), pages 379-460, March.
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