When Passive Index Investors Engage in Activist Corporate Governance: The Existence of Correlated Institutional Block Ownership Within REIT Capital Markets

Abstract

The paper shows that Vanguard has approximately a 20% stake in almost 80% of all publicly traded REITs. Other institutions, many of which are index mutual funds and ETFs, also consistently own blocs in the same firms. Results show that passive institutional investors engage in firm-specific activist corporate governance. Aggregate correlated bloc ownership by these institutions both increases the likelihood of REITs’ obtaining new equity capital (SEO) and corporate control changes such as mergers, liquidations, decisions to go private, and removal from established stock exchanges to trading on the pink sheets that remove firms from indexes.