Index Funds and the Future of Corporate Governance: Theory, Evidence, and Policy
By L. Bebchuk, Scott Hirst. Social Science Research Network, 2019
178 citations recorded by the source corpus.
We seek to contribute to understanding index fund stewardship by providing a comprehensive theoretical, empirical, and policy analysis of such stewardship. We put forward an agency-cost theory of the stewardship decisions that index fund managers make. Our agency-costs analysis shows that index fund managers have strong incentives to (i) underinvest in stewardship and (ii) defer excessively to the preferences and positions of corporate managers. We also undertake an empirical analysis of the full range of stewardship activities that index funds do and do not undertake. We show that the body of evidence is, on the whole, consistent with the incentive issues identified by our agency-costs framework. Finally, we explain how our analysis should reorient important ongoing debates regarding common ownership and hedge fund activism.
Subfields: Accounting, Finance
View Paper: https://www.semanticscholar.org/paper/79f204774f89dd4c1cdfed0a1531434e85f0479a
Citations in the corpus
- Investing for long-term value creation (2019, unknown): “Moreover, Bebchuk and Hirst (2019) show that mutual funds have an incentive to under-invest in stewardship, as they bear the full cost but only get a tiny part of the benefit.4 For Europe, Dimson, Karakaş, and Li (2018) find that institutional investors, in particular pension funds, are active in…”
- Do Index Funds Monitor? (2021, unknown): “finding echoes the evidence in Bebchuk and Hirst (2018) that index funds do not meet with the majority of their portfolio firms. Also, engagement relies on the fund expending resources to become informed: funds must first do research on their portfolio firms to understand what policies need to be im”
- Common ownership and competition in product markets (2021, unknown): “, see Lewellen and Lewellen (2018), Bebchuk, Cohen, and Hirst (2017), and Bebchuk and Hirst (2018). Our findings are important for both academic researchers and policymakers.”