Investment Duration and Corporate Governance

In this study we analyze the relation between institutional investment duration and corporate governance using a new metric of investment duration that accounts for firm-specific invest- ment durations of each institution. We conjecture that institutional investors that hold a firm’s shares for a longer duration have greater incentives and ability to influence the firm’s governance structure. Consistent with this conjecture, we find that a broadly defined index of corporate governance increases with the duration of institutional ownership. We also show that the relation between investment duration and corporate governance varies across differ- ent types of institutions and across firms with different stock market liquidities.