Working Paper: NBER ID: w30718
Authors: Alon Brav; Nadya Malenko; Andrey 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; corporate governance; index funds; shareholder engagement
JEL Codes: G23; G32; G34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Growth of passive funds (G23) | Diminished managerial power (M54) |
| Growth of passive funds (G23) | Enhanced managerial power (M54) |
| Growth of passive funds (G23) | Influence on corporate governance (G38) |
| Ownership stakes (G32) | Engagement in governance activities (G38) |
| Compensation structures (M52) | Engagement in governance activities (G38) |
| Flow incentives (J33) | Engagement in governance activities (G38) |
| Engagement through voice (L96) | Governance role of passive funds (G38) |
| Freerider problem (H40) | Underinvestment in governance (H54) |
| Financial incentives for larger fund managers (G23) | Engagement in governance (G38) |