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.
This introductory chapter provides the reader with some figures about institutional investors’ role in the governance of listed companies in the US...
We analyze voting records for management proposals and find that investors today hold directors accountable for a much wider range of issues, such as...