Beyond "Market Transparency": Investor Disclosure and Corporate Governance

Abstract

The ability to identify a firm’s shareholders is essential to modern corporate governance practice. Corporate managers, activist hedge funds, shareholder proposal sponsors, and other market actors all use this information in their efforts to shape corporate action. They can do so, however, only by dint of regulatory fiat. Since the 1970s, the SEC has required institutional investors to disclose their equity holdings every quarter on Form 13F. Today, these disclosures provide the best (and often the only) identifying information about a firm’s shareholders. But, while countless studies in law and finance rely on 13F data, none have turned the microscope around to examine the program itself.

This Article fills this gap by comprehensively mapping 13F’s significant impacts across a wide range of corporate governance processes. I examine numerous ways 13F shapes the corporate governance ecosystem, most of which have never previously been identified much less closely examined. Among other findings, I show that 13F likely mitigates the short-term bias of hedge fund activism; bolsters institutional investor advocacy on environmental, social, and governance topics; promotes more “collaborative” engagements between shareholders and managers; drives a robust “competition for votes” ahead of key elections; and facilitates the anticompetitive effects of common ownership.

There is an urgent need to understand these effects. Last summer, the SEC proposed eliminating 90% of 13F reports. Now, there are proposals pending before the agency and Congress to expand the volume and frequency of reporting. But these proposals and the commentary surrounding them universally fail to consider 13F’s role in corporate governance. In addition to mapping 13F’s current impacts, this Article also analyzes how each proposed reform would reshape this landscape. Surprisingly, I find several areas where shareholders and/or other corporate stakeholders could be made better off with less transparency about institutional holdings. As policymakers weigh changes to 13F, they must look past the impact on “market transparency” to consider how this information is actually being used on the ground, by whom, and to what ends.

Keywords: Securities Regulation, Corporate Governance, Disclosure, 13F, Hedge Fund Activism, Institutional Investors, Shareholder Litigation, Shareholder Activism, Shareholder Proposals

JEL Classification: G30, G34, G38,