Corporate governance in the presence of active and passive delegated investment

Adrian Aycan Corum, Andrey Malenko and Nadya Malenko

No 15230, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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.

Keywords: Corporate governance; Delegated asset management; Passive funds; Index funds; Competition; Investment stewardship; Engagement (search for similar items in EconPapers)
JEL-codes: G11 G23 G34 K22 (search for similar items in EconPapers)
Date: 2022-01
New Economics Papers: this item is included in nep-cfn
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Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Corporate Governance in the Presence of Active and Passive Delegated Investment (2020)
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