Firms’ Reaction to Changes in the Governance Preferences of Active Institutional Owners

68 Pages Posted: 30 Jun 2019 Last revised: 13 Sep 2019

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

Date Written: June 28, 2019

Abstract

In November 2012, Norway’s sovereign wealth fund (NBIM) unexpectedly announced that it would foster better corporate governance practices in its portfolio firms by articulating specific governance expectations. We use this sudden change in governance preferences as a natural experiment to understand shareholder influence among active ownership investors. We first document how the fund re-balanced its portfolio to achieve this governance objective believed to be aligned with investment objectives. We then show how firms for which the fund is an important investor and also firms that are very important to the fund reacted by aligning their corporate governance following NBIM expectations. Marginal investment changes and governance changes become more correlated in the new equilibrium. We also examine the heterogenous response of firms to institutional pressures. This paper advances existing research on active owners’ influence on firms, and particularly on firm governance practices.

Keywords: Corporate Governance; Institutional Ownership; Sovereign Wealth Funds

JEL Classification: F30, G32, G34

Suggested Citation

Aguilera, Ruth V. and Bermejo, Vicente J. and Capapé Aguilar, Javier and Cuñat, Vicente, Firms’ Reaction to Changes in the Governance Preferences of Active Institutional Owners (June 28, 2019). European Corporate Governance Institute - Finance Working Paper No. 625/2019; Northeastern U. D’Amore-McKim School of Business Research Paper No. 3411566. 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

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