Public pension fund ownership and firm performance

Yawen Jiao () and Pengfei Ye ()

Review of Quantitative Finance and Accounting, 2013, vol. 40, issue 3, 590 pages

Abstract: Equity ownership by public pension funds (PPFs) is widely used in the literature (see, e.g., Cremers and Nair 2005 ; Dittmar and Mahrt-Smith 2007 ) as a measure of the strength of shareholder monitoring/governance. This paper raises caution on such practices by illustrating an inverted-U shape relationship between PPF ownership and firms’ future performance, measured by stock returns and operating performance: during 1985–2005, future performance first increases, then declines in aggregate equity ownership by PPFs. Our results suggest that PPFs’ presence is consistent with shareholder value maximization when they have moderate influence on firm management, whereas excessive PPF ownership may facilitate PPF managers’ pursuits of political interests and destroy shareholder value. Therefore, it is important to impose an upper bound to PPF ownership when measuring the strength of shareholder monitoring/governance. Copyright Springer Science+Business Media, LLC 2013

Keywords: Public pension funds; Corporate governance; Political interests; Firm performance; G23; G32 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (6)

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DOI: 10.1007/s11156-012-0288-x

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