Does passive investment have a positive governance effect? Evidence from index funds ownership and corporate innovation

Fu, Lili; Pan, Liyuan; Wu, Fengyun

doi:10.1016/j.iref.2021.04.025

Cited by 17 publications

(3 citation statements)

References 46 publications

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“…2019; Fu et al . 2021). Note that we use RD_A as a controlling variable in the model because it gauges the degree of innovation input.…”

Section: Results Of Empirical Analysismentioning

confidence: 99%

“…We also conduct the test using the alternative measures of patents, adjusted by the firm's gross sales and assets. Moreover, R&D intensity, which is conventionally defined as R&D expenditures divided by sales or total assets, has been widely used in prior studies (e.g., Hirshleifer et al 2012;Fiordelisi et al 2019;Fu et al 2021). Note that we use RD_A as a controlling variable in the model because it gauges the degree of innovation input.…”

Section: The Effect Of Ceo Incentives On Ipmentioning

confidence: 99%

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CEO Risk Incentives and Innovation Premium*

Jung,

Park

2024

Asia-Pac J of Fin Stud

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We investigate the relationship between CEO risk incentives and the innovation premium (IP) proposed by Forbes. We suggest that compared to traditional proxies of innovation, the IP is a comprehensive measure of a firm's overall innovation and, therefore, can measure innovation effectiveness in broader industries. We find that both option vega and vega‐to‐delta ratio, as measures of CEO risk incentives, have a positive relationship with the IP. Additional tests reveal that the traditional patent‐related outputs are also motivated by CEO risk incentives, but only in the IT industry. Overall, our findings are consistent with (1) the empirical evidence of Coles et al. (2006, Journal of Financial Economics 79, 431) that a higher vega after controlling for delta motivates managers to implement riskier policy choices and (2) the argument (Dittmann et al. 2017, Review of Finance 21, 1805) that the strength of the risk‐taking incentive relative to the performance‐based incentive, the vega‐to‐delta ratio, captures CEO risk‐taking incentives more accurately.

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“…2019; Fu et al . 2021). Note that we use RD_A as a controlling variable in the model because it gauges the degree of innovation input.…”

Section: Results Of Empirical Analysismentioning

confidence: 99%

Section: The Effect Of Ceo Incentives On Ipmentioning

confidence: 99%

CEO Risk Incentives and Innovation Premium*

Jung,

Park

2024

Asia-Pac J of Fin Stud

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“…Our paper also adds to emerging research on the governance effects of passive investors [33,34]. The remarkable rise in the volume of assets under management by these institutions has sparked debates about the role of passive investors in the economy [1,35,36].…”

Section: Introductionmentioning

confidence: 88%

The Role of Passive Investors in Corporate Governance and Socially Responsible Investing: Evidence from Shareholder Proposals

Yang,

Huang,

Song

2024

Sustainability

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We study whether the substantial rise in passive ownership reshapes activist shareholders’ behavior in sponsoring shareholder proposals, which shareholders use to address issues they believe are crucial for the sustainable growth of a company. Our findings reveal a positive impact of passive investors on the initiation of governance, socially responsible investing (SRI), and an aggregate of both proposals. Interestingly, we show that managerial ability and board co-option potentially moderate their link. In the subsequent analysis, we note a constructive influence of passive investors on post-initiation outcomes, evidenced by an increase in withdrawal and voting percentage of proposals corresponding to heightened levels of passive ownership. These findings suggest that passive investors foster communication between activists and management and endorse the case even when it progresses to the voting stage. More importantly, the market values these proposals positively as reflected in higher observed buy-and-hold returns. Finally, our results are robust to instrumental variable analysis using Russell reconstitution as an exogenous shock. Taken together, our study offers broad implications that passive investors can indirectly engage in promoting sustainable practices by encouraging activist investors to sponsor governance and socially responsible proposals, a collaborative approach where shareholders contribute to sustainability efforts.

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Effects of dialect connectedness between chairperson and CEO on corporate innovation in China

Song

Chen

2023

Global Finance Journal

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Does passive investment have a positive governance effect? Evidence from index funds ownership and corporate innovation

Cited by 17 publications

References 46 publications

CEO Risk Incentives and Innovation Premium*

CEO Risk Incentives and Innovation Premium*

The Role of Passive Investors in Corporate Governance and Socially Responsible Investing: Evidence from Shareholder Proposals

Effects of dialect connectedness between chairperson and CEO on corporate innovation in China

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