Research and articles


  • Shareholder activism by TIAA-CREF in the US

    Carleton, Nelson, and Weisbach (1988): “The Influence of Institutions On Corporate Governance Through Private Negotiation: Evidence From TIAA-CREF
    Journal of Finance

    • Uses private letters from TIAA-CREF to show that most shareholder activism occurs “behind the scenes” through private negotiations rather than proxy voting
    • The effect of activism depends on the issue. Board diversity targeting reduces the stock price; restrictions on blank-check stock issues increase it
    • Regardless of the issue, profitability doesn’t change after activism
  • Shareholder activism by Hermes in the UK

    Becht, Franks, Mayer, and Rossi (2009): “Returns To Shareholder Activism: Evidence From a Clinical Study of the Hermes UK Focus Fund
    Review of Financial Studies

    • Uses private engagement data from Hermes Focus Fund
    • Engagements typically involved selling non-core assets, reining in diversification, and replacing the CEO or chair
    • Stock returns and profitability improve after engagement
  • The effect of hedge fund activism on firm value

    Brav, Jiang, Partnoy, and Thomas (2008): “Hedge Fund Activism, Corporate Governance, and Firm Performance”
    Journal of Finance

    • When an activist hedge fund acquires a 5% stake in a firm, firm value rises in the short-term, with no long-term reversal
    • Profitability, payouts to investors, and CEO turnover all rise
    • The results are likely due to activist hedge funds causing these effects, rather than predicting them and buying in anticipation
  • The effect of hedge fund activism on productivity

    Brav, Jiang, and Kim (2015): “The Real Effect of Hedge Fund Activism: Productivity, Asset Allocation, and Labour Outcomes
    Review of Financial Studies

    • Hedge fund activism improves plant-level productivity, which stems from higher labour productivity
    • Higher labour productivity arises despite hours not rising and wages not falling
    • Productivity also improves in plants sold by hedge funds. Such disposals are not asset-stripping, but reallocating assets to buyers who can make better use of them
    • Hedge funds target firms with underperforming plants. Similar underperforming plants not targeted by hedge funds don’t recover.  So the recovery isn’t simply a bounce-back that would have happened anyway
  • The effect of hedge fund activism on innovation

    Brav, Jiang, Ma, and Tian (2019): “How Does Hedge Fund Activism Reshape Corporate Innovation?
    Journal of Financial Economics

    • Hedge fund activism leads to a decline in R&D expenditure, but an improvement in R&D output – the number and quality of future patents
    • Some patents are sold, but become more impactful at their new owner
    • Some inventors leave, but produce more and better patents at their new employer. Those who stay also become more productive
    • Non-technical summary of all three papers
  • How proxy advisors influence voting outcomes

    Malenko and Shen (2016): “The Role of Proxy Advisory Firms: Evidence from a Regression-Discontinuity Design
    Review of Financial Studies

    • When Institutional Shareholder Services (ISS) recommends a “No” vote on say-on-pay, voting support is lower. But this doesn’t mean that ISS caused lower voting support.  It could be that poor-quality proposals lead to lower voting support (which would have happened regardless of ISS’s recommendation) and also ISS to recommend “No”
    • The paper uses a methodology to tease apart causality. A negative ISS recommendation causes say-on-pay support to fall by 25%
    • Non-technical summary
  • Conflicts of interest among proxy advisors

    Li (2016): “Outsourcing Corporate Governance: Conflicts of Interest Within the Proxy Advisory Industry
    Management Science

    • Institutional Shareholder Service (ISS) is a proxy advisor that also provides consulting services to companies, and thus may be conflicted. Glass Lewis is a proxy advisor that does not provide consulting services
    • When Glass Lewis entered the market, ISS became more likely to recommend “No” votes.
    • The effects were stronger for large firms (which are more likely to be ISS’s clients) and for complex rather than no-brainer votes (where it’s easier to be biased)
    • Non-technical summary
  • The governance benefits of index funds

      Appel, Gormley, and Keim (2016): “Passive Investors, Not Passive Owners.”
      Journal of Financial Economics


    • Higher index fund ownership leads to several improvements in governance (more independent directors, fewer poison pills, fewer restrictions on shareholders’ ability to call special meetings, and a lower likelihood of having dual-class shares)
    • It also leads to higher profitability and valuations. Likely channel is index funds’ voting power: index fund ownership reduces support for management proposals and increases support for governance-related shareholder proposals
    • Shows causation, not just correlation, by comparing companies at the top of the Russell 2000 (which have high index fund ownership, as they are the largest in their index) with companies at the bottom of the Russell 1000 (which have low index fund ownership)
  • How index funds and hedge funds work together

    Appel, Gormley, and Keim (2018): “Standing on the Shoulders of Giants: The Effect of Passive Investors on Activism.”
    Review of Financial Studies

    • Higher index fund ownership is uncorrelated with the frequency of activist campaigns, but is associated with more aggressive campaigns – those where the activist seeks board representation, especially in the form of proxy fights.
    • It also increases the likelihood of campaign success, measured by the campaign leading to a settlement with management (and the number of board seats the settlement gives to the activist), takeover defences being removed, and the firm being sold to the activist or a third party. (Prior studies showed these outcomes increase firm value)
    • No evidence that these campaigns increase payouts or debt
  • The effect of foreign ownership on company investment

    Bena, Ferreira, Matos, and Pires (2017): “Are Foreign Investors Locusts? The Long-Term Effects on Foreign Institutional Ownership
    Journal of Financial Economics

    • Foreign ownership increases long-term investment in tangible, intangible, and human capital

    • Authors identify causality by using the addition of a stock to MSCI indexes, which causes foreign institutional ownership to rise

    • Results contradict common concerns that foreign investors hollow out the domestic economy, and instead suggests they discipline entrenched managers
  • The anti-competitive effects of common ownership in airlines

    Azar, Schmalz, and Tecu (2018): “Anti-Competitive Effects of Common Ownership
    Journal of Finance

    • Common ownership (“CO”, airlines being more jointly held by the same asset managers) leads to airline ticket prices being 3-7% higher than the would be under separate ownership
    • Uses “MHHI Delta” measure of O’Brien and Salop (2000) to gauge CO. This measures if an investor holds large stakes in multiple companies with high market shares
    • To identify causation, the authors study BlackRock’s acquisition of Barclays Global Investors as a shock to CO. They argue that this merger increased CO, as BlackRock’s stake in each airline rose. Ticket prices also increased
  • Methodological concerns with the above study

    Dennis, Gerardi, and Schenone (2018): “Common Ownership Does Not Have Anti-Competitive Effects in the Airline Industry

    • MHHI Delta depends on firms' market shares by sales.  Sales depend on prices.  Thus, AST regress prices on something highly correlated with prices, mechanically leading to a significant relationship. When this is accounted for, the results are substantially weaker
    • Standard regression analysis treats all observations equally.  AST give more weight to high-traffic markets. When removing these weights, the results are substantially weaker
    • AST failed to take into account that many airlines had filed for bankruptcy.  Thus, management’s fiduciary duty was primarily towards creditors, so shareholders didn’t have effective control. After accounting for this, the results are substantially weaker
    • AST lump all tickets together, ignoring the difference between business and economy flights, and flights with and without stops. When applying the standard filters in the literature (e.g. focusing on direct economy flights), the results are substantially weaker
    • See here for AST’s reply
  • Incorrect measure of common ownership

    Gilje, Gormley, and Levit (2019): “Who’s Paying Attention? Measuring Common Ownership and Its Impact on Managerial Incentives”

    • An investor’s stake in a firm is an incomplete measure of her incentives to monitor it.  Her investor’s time is limited – thus, even if she has a large stake in a firm, she may devote little monitoring effort if she has large stakes in many other firms
    • AST’s use of the percentage equity stake essentially ignores all other firms within the investor’s portfolio. When this is taken into account, the results disappear
    • AST assume that BlackRock’s acquisition of BGI increased CO because its stakes in each airline rose. However, its stakes in many other firms rose as well, so BlackRock’s incentives to monitor airlines actually fell in many cases, which further questions the interpretation of AST’s findings
  • Incorrect application of the common ownership theory

    Kennedy, O’Brien, Song, and Waehrer (2017): “The Competitive Effects of Common Ownership: Economic Foundations and Empirical Evidence

    • Authors argue that AST misuse the MHHI Delta proposed in O’Brien and Salop (2000, “OS”)
    • The OS theory stresses that the MHHI Delta is an outcome, not a driver. Rather than MHHI Delta driving increases in prices, other factors may drive both the MHHI Delta and also prices. When conducting empirical tests tightly linked to the theory, the results disappear.
    • See here for AST’s reply
  • Results may be driven by the financial crisis

    Lewellen and Lowry (2019): “Does Common Ownership Really Increase Firm Coordination?

    • The BlackRock-BGI merger took place during the financial crisis, so any results could be due to the financial crisis’s effect on the airline industry
    • To identify causal effects, the authors study mergers of other financial institutions, many of which occurred outside the crisis.  Using these mergers, they find no evidence that increases in CO raised cooperation. They also show that the Blackrock-BGI merger can produce spurious evidence of such improvements
  • Results do not extend to other industries

    Koch, Panayides, and Thomas (2019): “Common Ownership and Competition in Product Markets

    • While AST consider a single, highly-regulated (and thus potentially atypical) industry, the authors study all industries
    • CO is neither positively associated with industry profitability or output prices, nor negatively correlated with measures of non-price competition, as would be the case if CO had anti-competitive effects
  • The anti-competitive effects of common ownership in banking

    Azar, Raina, and Schmalz (2019): “Ultimate Ownership and Bank Competition

    • CO is associated with lower branch-level deposit account interest rates, higher maintenance fees, and lower fee thresholds
    • Results are robust to focusing exclusively on the increase in bank ownership caused by the growth of index funds
  • The effects of common ownership on managerial incentives

    Anton, Ederer, Gine, and Schmalz (2018): “Common Ownership, Competition, and Top Management Incentives

    • CO is associated with weaker managerial incentives to improve own-firm performance