Mutual Fund Transparency and Corporate Myopia

Abstract

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Differences in CEO compensation under large and small institutional ownership

“…They show that investors increase their stakes in firms listed on the index. Similarly, Aghion, Reenen, and Zingales () and Agarwal, Vashishtha, and Venkatachalam () use inclusion to the Standard and Poor's (S&P) 500 index as an instrument. They argue that institutional investors are benchmarked against indices and, hence, have an incentive to own firms listed on these indices.…”

ETF Ownership and Corporate Investment

“…In section 3.3 of the paper we test the hypothesis using an instrumental variable (IV) model, similar to Aghion, Van Reenen and Zingales 2013and Agarwal, Vashishtha and Venkatachalam (2017). For this test we use the inclusion of a firm in the S&P500 index as an instrument.…”

“…Since many ETFs track the S&P500 index, the demand for shares by ETFs in newly listed companies increases. Several other authors have used S&P500 inclusions as an instrument for institutional ownership in various settings (e.g., Aghion, Van Reenen and Zingales (2013); Agarwal, Vashishtha, and Venkatachalam (2017)). Importantly, because inclusion in the index is not based on considerations of future performance (e.g., Aghion, Van Reenen and Zingales (2013)), the increase in ETF ownership is plausibly exogenous, thus satisfying the exclusion restriction.…”

“…Several other studies have addressed the impact of ETFs on the underlying asset markets, focusing their analysis on the asset pricing dimension. Aside from Ben-David, Franzoni and Moussawi (2017) and Israeli, Lee and Sridharan (2017), who show that ETF ownership increases the non-fundamental volatility of stocks and their pricing inefficiency, respectively, Agarwal et al (2017) show that ETF ownership increases commonality in liquidity. On a theoretical level, Bhattacharya and O'Hara (2016) show that ETFs contribute towards market instability.…”

The Effect of Capital Gains Tax Policy Changes on Long-Term Investments

“…2 In support of this idea, several research studies find that the 1 In a survey, Graham, Harvey, and Rajgopal (2005) find 78% of corporate managers admit to sacrificing economic value to achieve quarterly earnings targets and consider pressure from institutional investors as one of the main reasons for this myopic behavior. See, Bushee (1998), Fang, Tian, and Tice (2014), Bernstein (2015), Asker, Farre-Mensa, and Ljungqvist (2015), and Agarwal, Vashishtha, and Venkatachalam (2018) for archival evidence on how pressure from short-term oriented investors results in underinvestment in long-term projects. See Shleifer and Vishny (1990) for a formal model of how short-term oriented investors can generate corporate myopia.…”