Vanderbilt Law Review

First Page



This Symposium volume of the Vanderbilt Law Review, sponsored by the Institute for Law and Economic Policy ("ILEP"), focuses on the critical role of institutional investors in the modern American corporation. The agency cost model of the corporation tells us that in a dispersed ownership system, such as the U.S. system, large, motivated shareholders can play an important role in reducing the agency costs of equity by closely monitoring the actions of corporate management.1 Activist investors can use their voting powers, their power to file suit, and their power to sell their interests in the firm, to align the interests of managers and shareholders more closely.2 In this volume, seven different articles by a total of ten authors explore the theory and reality of institutional investors acting as monitors of corporate management.

Beginning in the early 1990s, institutional investor shareholder activism was praised as a promising means of reducing managerial agency costs.3 The theory was simple: if shareholder monitoring could limit managers' divergence from the goal of shareholder wealth maximization, then institutional shareholders were well positioned to act as effective monitors. Institutions held larger blocks of stock than most other investors and collectively held well over fifty percent of the stock of most large public companies. Acting together, these shareholders would have the power and the incentives to push for good corporate governance and to nudge managers to pursue wealth-maximizing strategies.