Do Index Funds Monitor?

Do Index Funds Monitor?

Abstract Passively managed index funds now hold over 30$\%$ of U.S. equity fund assets; this shift raises fundamental questions about monitoring and governance. We show that, relative to active funds, index funds are less effective monitors: (a) they are less likely to vote against firm management o...

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Veröffentlicht in:The Review of financial studies 2022-01, Vol.35 (1), p.91-131
Hauptverfasser: Heath, Davidson, Macciocchi, Daniele, Michaely, Roni, Ringgenberg, Matthew C
Format: Artikel
Sprache:eng
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2004-2018
Aktiengesellschaft
Differenz von Differenzen
Indexderivat
Institutioneller Investor
Kontrolle
USA
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container_end_page 131
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container_title The Review of financial studies
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creator Heath, Davidson
Macciocchi, Daniele
Michaely, Roni
Ringgenberg, Matthew C
description Abstract Passively managed index funds now hold over 30$\%$ of U.S. equity fund assets; this shift raises fundamental questions about monitoring and governance. We show that, relative to active funds, index funds are less effective monitors: (a) they are less likely to vote against firm management on contentious governance issues; (b) there is no evidence they engage effectively publicly or privately; and (c) they promote less board independence and worse pay-performance sensitivity at their portfolio companies. Overall, the rise of index funds decreases the alignment of incentives between beneficial owners and firm management and shifts control from investors to managers.
doi_str_mv 10.1093/rfs/hhab023
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source EBSCOhost Business Source Complete; Oxford University Press Journals All Titles (1996-Current)
subjects 2004-2018
Aktiengesellschaft
Differenz von Differenzen
Indexderivat
Institutioneller Investor
Kontrolle
USA
title Do Index Funds Monitor?
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