Andrey Malenko

What the Rise of Indexing Means for Corporate Governance

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The amount of assets that passive (index) funds have under management has grown significantly in recent decades. Domestic passive funds and ETFs now manage more than half of all assets under management (AUM) of domestic equity mutual funds and ETFs, and the Big Three passive fund managers (BlackRock, State Street, and Vanguard) cast over a quarter of the votes in S&P 500 companies. The growth in the voting power of passive funds has attracted the attention of market participants, academics, and regulators. For example, concerns about their outsized influence have led a group of senators to propose the INDEX Act, … Read more

Creating Controversy in Proxy Voting Advice

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Proxy advisory firms have emerged as major players in corporate governance by helping to address the public goods aspects of information production in corporate governance. These firms provide both a) recommendations on how to cast proxy votes and b) research reports that contain the full rationale for their recommendations, including detailed information on the operating firm’s governance. While proxy advisers’ research reports are only available to their subscribing shareholders, their recommendations are often made public in the media. Through both these public recommendations and private research reports, proxy advisers, such as ISS, have a substantial impact on voting outcomes.… Read more

Corporate Governance in the Presence of Active and Passive Delegated Investment

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Institutional ownership has grown tremendously over recent decades, rising to more than 70 percent of U.S. public firms. The composition of institutional ownership has also changed, with a remarkable growth in passive funds: The fraction of equity mutual fund assets held by passive funds has increased six-fold, from around 5 percent to 30 percent. The Big Three index fund managers alone now cast about 25 percent of votes in S&P 500 firms. How active and passive asset managers monitor and engage with their portfolio companies has thus become of utmost importance for the governance and performance of public firms.

There … Read more