Working Paper: CEPR ID: DP16337
Authors: Marco Becht; Julian R. Franks; Hannes Wagner
Abstract: We analyze the monitoring efforts of a large active asset manager that involve high-level private meetings with portfolio firms that are unobservable to outsiders. Our analysis reveals the inner workings of the asset management organization based on detailed records of contacts with executives and board members of portfolio firms, internal analyst recommendations, voting decisions, and daily fund-level stock holdings. Private meetings generate pronounced trading patterns, with fund managers trading on and around meeting days and votes. Our results show that engagement with target firms generates insights and information advantages, increases trading and is associated with significant abnormal returns.
Keywords: Active Investors; Trading; Institutional Investors; Corporate Governance; Stewardship; Active Ownership; Shareholder Voting; Analysts; Fund Managers
JEL Codes: G11; G14; G23; G34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Private meetings between asset managers and portfolio firms (G34) | significant trading patterns (F10) |
| Private meetings between asset managers and portfolio firms (G34) | trading activity on meeting days (G14) |
| Engagement with target firms (G34) | insights that generate information advantages (D83) |
| Insights that generate information advantages (D83) | internal analyst recommendations (G24) |
| internal analyst recommendations (G24) | trading decisions (G11) |
| Trading following meetings (G14) | significant abnormal returns (G14) |
| Stocks receiving sell signals (G17) | substantial negative returns (G12) |
| Stocks receiving buy signals (G17) | generate positive returns (G11) |
| Meetings with governance specialists (G38) | negative trading outcomes (G41) |
| Insights gained from meetings with portfolio firms (G34) | significant changes in trading behavior (G41) |
| Governance concerns (G38) | reduced buying activity and increased selling (G19) |
| Internal analyst downgrades (G24) | significant sell-offs (G10) |