Citation

Discussion Paper Details

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Title: Corporate governance in the presence of active and passive delegated investment

Author(s): Adrian Aycan Corum, Andrey Malenko and Nadya Malenko

Publication Date: August 2020

Keyword(s): Competition, corporate governance, delegated asset management, engagement, Index funds, investment stewardship and passive funds

Programme Area(s): Financial Economics

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.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=15230

Bibliographic Reference

Corum, A, Malenko, A and Malenko, N. 2020. 'Corporate governance in the presence of active and passive delegated investment'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=15230