Do Index Funds Monitor?

Do Index Funds Monitor?

Davidson Heath, Daniele Macciocchi, Roni Michaely, Matthew C. Ringgenberg

Series number :

Serial Number: 

Date posted :

November 20 2019

Last revised :

March 04 2021
SSRN Share


  • Corporate governance • 
  • passive investing • 
  • index investing • 
  • exit • 
  • monitoring • 
  • voting

Passively managed index funds now hold over 30% of U.S. equity fund assets; this shift raises fundamental questions about monitoring and governance.

We show that, relative to active funds, index funds are less effective monitors: (a) they are less likely to vote against firm management on contentious governance issues; (b) there is no evidence they engage effectively publicly or privately; and (c) they promote less board independence and worse pay-performance sensitivity at their portfolio companies. Overall, the rise of index funds decreases the alignment of incentives between beneficial owners and firm management and shifts control from investors to managers.

Published in

Published in: 
Publication Title: 
Accepted, Review of Financial Studies


Real name:
Matthew C. Ringgenberg
Real name:
Davidson Heath
Real name:
Daniele Macciocchi