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Shareholder activism of public pension funds: The political facet

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  • Wang, Yong
  • Mao, Connie X.

Abstract

This paper studies the political incentive of public pension funds in shareholder activism. Using a sample of shareholder proposals from 1993 to 2013 and a hand-collected data set of the political variables of public pension funds, we document evidence consistent with the “political attention hypothesis.” We find that the number of politicians on public pension fund boards is significantly positively related to the frequency with which portfolio firms are targeted. Moreover, the frequency of social-responsibility proposals by public pension funds increases significantly, as the funds have a greater number of board members running for election to public office. However the frequency of corporate governance proposals is not related to the number of board members running for elections to public office. Furthermore, we document that political connection between a portfolio firm and a public pension fund mitigates the firm’s likelihood of being targeted by the fund with social-responsibility proposals. This result supports the “political contribution hypothesis.” The paper provides direct evidence that public pension-fund board members employ shareholder proposals to enhance their political capital.

Suggested Citation

  • Wang, Yong & Mao, Connie X., 2015. "Shareholder activism of public pension funds: The political facet," Journal of Banking & Finance, Elsevier, vol. 60(C), pages 138-152.
    • Handle: RePEc:eee:jbfina:v:60:y:2015:i:c:p:138-152
    DOI: 10.1016/j.jbankfin.2015.08.011
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    Cited by:

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    2. Duan, Ying & Jiao, Yawen & Tam, Kinsun, 2021. "Conflict of interest and proxy voting by institutional investors," Journal of Corporate Finance, Elsevier, vol. 70(C).
    3. Incheol Kim & Hong Wan & Bin Wang & Tina Yang, 2019. "Institutional Investors and Corporate Environmental, Social, and Governance Policies: Evidence from Toxics Release Data," Management Science, INFORMS, vol. 65(10), pages 4901-4926, October.
    4. Jara, Mauricio & López-Iturriaga, Félix & San Martín, Pablo & Saona, Paolo & Tenderini, Giannina, 2019. "Chilean pension fund managers and corporate governance: The impact on corporate debt," The North American Journal of Economics and Finance, Elsevier, vol. 48(C), pages 321-337.
    5. Ben Arfa, Nouha & Karmani, Majdi & Labaronne, Daniel, 2017. "Antecedents of hedge fund activism in French listed target firms," Research in International Business and Finance, Elsevier, vol. 42(C), pages 1315-1326.
    6. Jory, Surendranath & Ngo, Thanh & Susnjara, Jurica, 2017. "The effect of shareholder activism on bondholders and stockholders," The Quarterly Review of Economics and Finance, Elsevier, vol. 66(C), pages 328-344.

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    More about this item

    Keywords

    Shareholder activism; Public pension fund; Agency conflicts; Social investments; Political incentive;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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