The Systemic Governance Influence of Universal Owners: Evidence from an Expectation Document

Abstract

Universal owners can systemically diffuse their investment preferences to a large share of the market. We use the unexpected release of a corporate governance expectation document by Norway’s sovereign wealth fund as a natural experiment to understand how active universal investors can influence firms. We introduce a new decomposition to explore the effectiveness of this distinct activism tool. We show how firms adapted to the fund’s new portfolio-wide governance expectations and explore their heterogeneous response across ownership levels and firm characteristics. We also show how the fund changed it’s investment policy to meet it’s new stated preferences.

Keywords: Corporate Governance; Institutional Ownership; Expectation Document

JEL Classification: F30, G32, G34