Corporate Governance in the Presence of Active and Passive Delegated Investment

Corporate Governance in the Presence of Active and Passive Delegated Investment

Adrian Aycan Corum, Andrey Malenko, Nadya Malenko

Series number :

Serial Number: 
695/2020

Date posted :

August 26 2020

Last revised :

January 31 2022
SSRN Share

Keywords

  • Corporate governance • 
  • delegated asset management • 
  • Passive Funds • 
  • index funds • 
  • competition • 
  • Investment Stewardship • 
  • engagement • 
  • monitoring

We examine the governance role of delegated portfolio managers. In our model, investors allocate their wealth between passive funds, active funds, and private savings, and fund fees are endogenously determined. Funds' ownership stakes and fees determine funds' incentives to engage in governance.

Whether passive fund growth improves governance depends on whether it crowds out private savings or active funds. In the former case, it improves governance even though it is accompanied by lower fees, whereas in the latter case it can harm governance. Overall, passive fund growth improves governance only if it does not increase fund investors' returns too much.

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Authors

Real name:
Adrian Aycan Corum