Get access

Independent boards and the institutional investors that prefer them: Drivers of institutional investor heterogeneity in governance preferences

Authors

  • Karen Schnatterly,

    Corresponding author
    1. Department of Management, Trulaske College of Business, University of Missouri-Columbia, Columbia, Missouri, U.S.A.
    • Correspondence to: Karen Schnatterly, Department of Management, Trulaske College of Business, University of Missouri-Columbia, Columbia, MO 65211-2600, U.S.A. E-mail: schnatterlyk@missouri.edu

    Search for more papers by this author
  • Scott G. Johnson

    1. Department of Management, Spears School of Business, Oklahoma State University, Stillwater, Oklahoma, U.S.A.
    Search for more papers by this author

  • Both authors contributed equally to the article.

Abstract

Institutional investors report that they prefer to invest in firms with greater board independence despite the fact that researchers have been unable to demonstrate a link between board independence and firm performance. We investigate whether differences among institutional investors affect these preferences. We find that trading strategies have some effect but that mutual funds—facing the strongest institutional pressures—have significantly stronger preferences for firms with greater board independence than do other types of institutional investors. This suggests that institutional investor preferences for independent boards are at least partially driven by institutional pressures rather than anticipated reductions in agency costs. Copyright © 2013 John Wiley & Sons, Ltd.

Get access to the full text of this article

Ancillary