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Corporate governance in the presence of active and passive delegated investment

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  • Corum, Adrian Aycan
  • Malenko, Andrey
  • Malenko, Nadya

Abstract

We examine the governance implications of passive fund growth. In our model, investors allocate capital between passive funds, active funds, and private savings, and funds' fees and ownership stakes determine their incentives to engage in governance. If passive funds grow because of easier access to index investing, governance improves, albeit only up to a point where passive funds start primarily crowding out investors' allocations to active funds rather than private savings. In contrast, if passive funds grow because of reduced opportunities for profitable active management, governance worsens. Our results reconcile conflicting evidence about the effects of passive ownership on governance.

Suggested Citation

  • Corum, Adrian Aycan & Malenko, Andrey & Malenko, Nadya, 2022. "Corporate governance in the presence of active and passive delegated investment," CEPR Discussion Papers 15230, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:15230
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    Cited by:

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    3. Benjamin Bennett & René M. Stulz & Zexi Wang, 2020. "Does Joining the S&P 500 Index Hurt Firms?," NBER Working Papers 27593, National Bureau of Economic Research, Inc.

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    More about this item

    Keywords

    Corporate governance; Delegated asset management; Passive funds; Index funds; Competition; Investment stewardship; Engagement;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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