Corporate Governance in the Presence of Active and Passive Delegated Investment

66 Pages Posted: 31 Aug 2020 Last revised: 1 Feb 2022

See all articles by Adrian Aycan Corum

Adrian Aycan Corum

Cornell University - Samuel Curtis Johnson Graduate School of Management

Andrey Malenko

University of Michigan, Stephen M. Ross School of Business; Centre for Economic Policy Research (CEPR)

Nadya Malenko

University of Michigan, Stephen M. Ross School of Business; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: January 24, 2021

Abstract

We examine the governance role of delegated portfolio managers. In our model, investors allocate their wealth between passive funds, active funds, and private savings, and fund fees are endogenously determined. Funds' ownership stakes and fees determine funds' incentives to engage in governance. Whether passive fund growth improves governance depends on whether it crowds out private savings or active funds. In the former case, it improves governance even though it is accompanied by lower fees, whereas in the latter case it can harm governance. Overall, passive fund growth improves governance only if it does not increase fund investors' returns too much.


The Online Appendix can be accessed at
https://www.nadyamalenko.com/Corum,Malenko,Malenko_OnlineAppendix.pdf

Keywords: corporate governance, delegated asset management, passive funds, index funds, competition, investment stewardship, engagement, monitoring

JEL Classification: G11, G23, G34, K22

Suggested Citation

Corum, Adrian Aycan and Malenko, Andrey and Malenko, Nadya, Corporate Governance in the Presence of Active and Passive Delegated Investment (January 24, 2021). European Corporate Governance Institute – Finance Working Paper 695/2020, Available at SSRN: https://ssrn.com/abstract=3681095 or http://dx.doi.org/10.2139/ssrn.3681095

Adrian Aycan Corum

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

437 Sage Hall
114 East Ave.
Ithaca, NY 14853
United States

HOME PAGE: http://https://www.johnson.cornell.edu/faculty-and-research/faculty/aac256

Andrey Malenko

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Nadya Malenko (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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