The Influence of Pension Funds on Corporate Governance

CER-ETH Center of Economic Research at ETH Zurich, Working Paper No. 07/63

26 Pages Posted: 7 Feb 2007

See all articles by Urs von Arx

Urs von Arx

ETH Zürich - Institute for Economic Research

Andreas Schafer

European University Institute - Economics Department (ECO)

Date Written: January 2007

Abstract

Although pension funds have gained importance in the last two decades, their role has not been described in detail by economic models. This paper focusses on the scope of these institutional investors when they are not satisfied with a management team of a company in which the pension fund holds a block of shares. Stock holdings by pension funds are largely dispersed. Therefore, any intervention by pension funds in corporate governance requires the formation of a coalition of pension funds. The realization of a coordinated intervention, in turn, is subject to the problems related to the provision of public goods, such as free-riding. We find that stock dispersion among pension funds, the amount of noise traders, coordination costs and the attractiveness of the exit option are relevant factors for successful interventions. The overall probability for a successful intervention, however, is quite low.

Keywords: Pension Funds, Public Goods, Coase Theorem

JEL Classification: G23, H41, Q50

Suggested Citation

von Arx, Urs and Schafer, Andreas, The Influence of Pension Funds on Corporate Governance (January 2007). CER-ETH Center of Economic Research at ETH Zurich, Working Paper No. 07/63. Available at SSRN: https://ssrn.com/abstract=959156 or http://dx.doi.org/10.2139/ssrn.959156

Urs Von Arx (Contact Author)

ETH Zürich - Institute for Economic Research ( email )

Weinbergstrasse 35
WEH
Zurich, 8092
Switzerland

Andreas Schafer

European University Institute - Economics Department (ECO) ( email )

Villa San Paolo
Via della Piazzuola 43
50133 Florence
Italy

Register to save articles to
your library

Register

Paper statistics

Downloads
349
rank
83,245
Abstract Views
1,768
PlumX Metrics