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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 role of delegated portfolio managers. In our model, investors decide how to allocate their wealth between passive funds, active funds, and private savings, and asset management fees are endogenously determined. Funds' ownership stakes and asset management fees determine their incentives to engage in governance. Whether passive fund growth improves aggregate governance depends on whether it crowds out private savings or active funds. In the former case, it improves governance even if accompanied by lower passive fund fees, whereas in the latter case, it improves governance only if it does not increase fund investors' returns too much. Regulations that decrease funds' costs of engaging in governance may decrease total welfare. Moreover, even when such regulations are welfare improving and increase firm valuations, they can be opposed by both fund investors and fund managers.

Keywords: Competition; corporate governance; delegated asset management; engagement; Index funds; investment stewardship; passive funds (search for similar items in EconPapers)
JEL-codes: G11 G23 G34 K22 (search for similar items in EconPapers)
Date: 2020-08
New Economics Papers: this item is included in nep-cfn
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Working Paper: Corporate Governance in the Presence of Active and Passive Delegated Investment (2020) Downloads
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