Political Representation and Governance: Evidence from the Investment Decisions of Public Pension Funds

54 Pages Posted: 27 Mar 2016 Last revised: 19 Nov 2017

Aleksandar Andonov

Erasmus University Rotterdam, Erasmus School of Economics

Yael V. Hochberg

National Bureau of Economic Research (NBER); Rice University - Jesse H. Jones Graduate School of Business

Joshua D. Rauh

Stanford Graduate School of Business; Hoover Institution; National Bureau of Economic Research (NBER)

Date Written: November 16, 2017

Abstract

Representation on pension fund boards by state officials — often determined by statute decades past — is negatively related to the performance of private equity investments made by the pension fund, despite state officials’ relatively strong financial education and experience. Their underperformance appears to be partly driven by poor investment decisions consistent with political expediency, and is also positively related to political contributions from the finance industry. Boards dominated by elected rank-and-file plan participants also underperform, but to a smaller extent and attributable to lesser financial experience.

Keywords: Politicians, Governance, Public Pension Funds, Private Equity, Underperformance, State Officials, Pension Fund Boards

JEL Classification: G11, G23, G28, H75, D83

Suggested Citation

Andonov, Aleksandar and Hochberg, Yael V. and Rauh, Joshua D., Political Representation and Governance: Evidence from the Investment Decisions of Public Pension Funds (November 16, 2017). Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2754820 or http://dx.doi.org/10.2139/ssrn.2754820

Aleksandar Andonov

Erasmus University Rotterdam, Erasmus School of Economics ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Yael V. Hochberg

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States

Joshua D. Rauh (Contact Author)

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Hoover Institution ( email )

Stanford, CA 94305-6010
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to support our free research

Register

Paper statistics

Downloads
867
rank
23,244
Abstract Views
4,642
PlumX