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Ownership concentration and institutional investors’ governance through voice and exit

  • Patrick Jahnke


Drawing on data collected in interviews with investors and corporates in the United States and Europe, this paper sheds light on the motives behind shareholder engagement. It explains why index funds engage in corporate governance, despite their apparent lack of financial incentive to do so. Applying Hirschman's concepts of exit and loyalty to the investment management industry, this paper suggests that for many institutional shareholders today, voice is more feasible than exit. For the largest index investors, the cost of engagement has fallen to a level where it is today negligible. The immense concentration amongst index funds, with the three largest fund managers controlling over 90 percent of assets, ensures sufficient return on their governance investments. Furthermore, interviews with activist investors suggest that they have learned to work with index investors and that index funds do not present barriers to successful campaigns. This paper therefore advocates against restricting index funds’ voting rights. Doing so would muzzle those shareholders with the deepest pockets and the greatest potential for corporate oversight. Instead what is needed is regulation to ensure greater disclosure of engagement efforts by the largest fund companies enabling greater academic and public oversight of asset managers’ engagement activities.


Corresponding author

*Corresponding author: Patrick Jahnke, School of Social and Political Science, The University of Edinburgh, 15a George Square, Edinburgh EH8 9LD, UK; Email:


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I am immensely grateful to Iain Hardie for comments on an earlier version of the manuscript. I would also like to thank participants at the oikos Young Scholars Finance Academy in Zurich, participants at the EISA Pan-European Conferences on International Relations in Barcelona, as well as the anonymous reviewers and the editors for their helpful comments.



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Ownership concentration and institutional investors’ governance through voice and exit

  • Patrick Jahnke


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