The Systemic Governance Influence of Expectation Documents: Evidence from a Universal Owner

80 Pages Posted: 30 Jun 2019 Last revised: 7 Dec 2021

See all articles by Ruth V. Aguilera

Ruth V. Aguilera

Northeastern University - Department of International Business and Strategy

Vicente J. Bermejo

ESADE Business School

Javier Capapé

IE University

Vicente Cuñat

London School of Economics & Political Science (LSE) - Financial Markets Group; The London School of Economics

Date Written: July 1, 2021

Abstract

We examine expectation documents’ effectiveness as an activism tool. We use as a natural experiment, the unforeseen release by the Norwegian sovereign wealth fund of a corporate governance expectation document. We introduce a novel, three-way analytical decomposition of the firms, the fund, and their joint response to this document. Firms’ governance practices adapt to the fund’s new portfolio-wide governance preferences, with heterogeneous responses across ownership and firm characteristics. The fund’s investment polices also change, even at the expense of financial returns. Overall, our research demonstrates the potential effectiveness of expectation documents as an emerging low-cost activism tool for universal investors.

Keywords: Corporate Governance; Institutional Ownership; Expectation Documents

JEL Classification: F30, G32, G34

Suggested Citation

Aguilera, Ruth V. and Bermejo, Vicente J. and Capapé Aguilar, Javier and Cuñat, Vicente and Cuñat, Vicente, The Systemic Governance Influence of Expectation Documents: Evidence from a Universal Owner (July 1, 2021). European Corporate Governance Institute - Finance Working Paper No. 625/2019, Northeastern U. D’Amore-McKim School of Business Research Paper No. 3411566, ESADE Business School Research Paper, Available at SSRN: https://ssrn.com/abstract=3411566 or http://dx.doi.org/10.2139/ssrn.3411566

Ruth V. Aguilera

Northeastern University - Department of International Business and Strategy ( email )

Boston, MA 02115
United States

Vicente J. Bermejo

ESADE Business School ( email )

Av. de Pedralbes, 60-62
Barcelona, 08034
Spain

Javier Capapé Aguilar

IE University ( email )

Calle Maria de Molina 6
Madrid, Madrid 28006
Spain

Vicente Cuñat (Contact Author)

London School of Economics & Political Science (LSE) - Financial Markets Group ( email )

Houghton Street
London WC2A 2AE
United Kingdom

HOME PAGE: http://www.vicentecunat.com

The London School of Economics ( email )

United Kingdom

HOME PAGE: http://www.vicentecunat.com

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