Working Paper: CEPR ID: DP17732
Authors: Alon Brav; Andrey Malenko; Nadya Malenko
Abstract: Passively managed funds have grown to become some of the largest shareholders in publicly traded companies, but there is considerable debate about the effects of this growth on corporate governance. The goal of this paper is to review the literature on the governance implications of passive fund growth and discuss directions for future research. In particular, we present a framework to understand the incentives of passive and actively managed funds to engage in governance, review the empirical evidence in the context of this framework, and highlight the questions that remain unanswered.
Keywords: passive funds; index funds; voting; institutional investors; shareholder activism; engagement; monitoring; stewardship; big three; corporate governance
JEL Codes: G23; G34; K22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| engagement efforts by passive funds (G23) | increased management fees (G19) |
| engagement efforts by passive funds (G23) | enhanced firm performance (L25) |
| replacement of retail investors by passive funds (G23) | different governance implications (H11) |
| passive fund growth (G23) | mixed evidence on governance effects (H11) |
| passive fund growth (G23) | potential increase in CEO power (G34) |
| growth of passive funds (G23) | reduction in managerial power (D73) |
| greater passive ownership (G32) | increased support for independent directors (G34) |
| greater passive ownership (G32) | increased support for shareholder proposals (G34) |