Investors are focusing on corporate governance and disclosure issues, according to a year-end survey of U.S. institutional investors undertaken in the past week by Broadgate Consultants Inc.

More than 76% of the 89 survey participants, which included leading fund managers across the U.S., said they expect pressure from institutional investors on corporations related to corporate governance matters to increase next year.

Among their top concerns are stock option grants and pension fund accounting. More than 70% of the respondents said that they are unhappy about the rising quantity of stock options being issued to employees and their potential dilutive effect. Over the last 18 months, the worst bear market in memory has wiped out an estimated $1 trillion in shareholder value.

Nearly 80% of the respondents are deeply concerned about overly optimistic assumptions used by corporations for returns related to their pension funds, which can often boost earnings expectations. Corporations are reviewing their assumptions regarding pension assets in light of current stock market conditions.

Looking forward, U.S. investors hope for better returns from equities, particularly small cap issues, with 91% expecting small cap stocks to rebound in 2002. The outlook for technology stocks is less clear, despite their recent resurgence. About half of the respondents expect technology stocks to lead the market out of its 2001 doldrums.

U.S. investors also expect increased takeover activity in 2002 to contribute to market gains. Industry sectors most likely to see increased takeover activity include technology, telecommunications, financial institutions and health care. The housing sector is viewed as being the industry least likely to see significant takeover activity.

“The survey results indicate that many sophisticated U.S. market participants believe that the indiscriminate nature of the stock market decline may yield exceedingly attractive buying opportunities in the New Year, even in the absence of bull market conditions,” said Thomas Franco, chairman and CEO of Broadgate. “This conviction is buttressed by the widely held view that there will be increased takeover activity in 2002, particularly with many companies selling for less than the cash they have on hand.”

The outlook for a strong initial public offering market in the first half of 2002 was rated “good” by almost 40% of the respondents. On the question of increased regulation of IPOs in the wake of this year’s scandals, 51% of the respondents said there should be more federal regulation.