Public Pension Fund Ownership and Firm Performance

Posted: 20 Mar 2009

See all articles by Yawen Jiao

Yawen Jiao

University of California, Riverside

Pengfei Ye

Virginia Tech

Date Written: March, 17 2009


Equity ownership by public pension funds (PPFs) has been widely used in the existing literature (see, among others, Cremers and Nair, 2005; and Dittmar and Mahrt-Smith, 2007) to measure the strength of shareholder monitoring/governance. This paper raises caution about such practices by illustrating that there is an inverted-U shape relationship between PPF ownership and firms' future performance, as measured by short-term and long-term stock returns and operating performance: during 1985 to 2005, future performance first increases, then declines in aggregate equity ownership by PPFs. These results suggest: First, shareholder value considerations and political interests/pressures co-exist for PPF managers. Second, PPFs' presence is consistent with shareholders value maximization when they have moderate influence on firm management, whereas excessive PPF ownership facilitates PPF managers' pursuits for political interests and destroys shareholder value. Finally, it is necessary to impose an upper bound to PPF ownership in using it to proxy for the strength of shareholder monitoring/governance.

Keywords: public pension funds, stock returns,operating performance

JEL Classification: G23, G32

Suggested Citation

Jiao, Yawen and Ye, Pengfei, Public Pension Fund Ownership and Firm Performance (March, 17 2009). Available at SSRN: or

Yawen Jiao (Contact Author)

University of California, Riverside ( email )

Riverside, CA 92521
United States

Pengfei Ye

Virginia Tech ( email )

1016 Pamplin Hall
Blacksburg, VA 24061
United States

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