We examine whether institutional investors affect corporate governance by analyzing institutional holdings in companies from 23 countries in the 2003-2008 period. We find that institutional investment is positively associated with firm-level governance. Most interestingly, changes in institutional ownership over time, positively affect subsequent changes in firm-level governance, but we do not find the reverse to be true. Foreign institutions are the drivers of governance improvement outside of the U.S., while domestic institutions play a predominant role in the U.S. The legal origin of the institution matters, as institutions domiciled in common-law countries (i.e., high shareholder protection), are more effective in promoting good governance worldwide, than institutions from civil-law countries (i.e., low shareholder protection). The impact of institutional investment also depends on the extent of shareholder protection in the portfolio firm’s home-country. Domestic institutions play the most important role in pushing for better governance in countries with strong shareholder protection. However, it is foreign institutions and institutions from countries with strong shareholder protection, that play a crucial role in pushing for better governance, in firms located in countries with weak shareholder protection. Additionally, we find that international portfolio investment also affects governance outcomes outside of the U.S., as firms with more institutional ownership are more likely to terminate poorly performing CEOs. Our results suggest that institutional investors promote the convergence of corporate governance regimes around the world.