2018 Working Paper Prizes

This year, the Finance Series prize of €5,000, which is sponsored by Aberdeen Standard Investments, the global fund manager, was awarded to Professors Mike Burkart (London School of Economics) , Salvatore Miglietta (BI Norwegian Business School) and Charlotte Ostergaard (BI Norwegian Business School), for their paper on “Why Do Boards Exist? Governance Design in the Absence of Corporate Law” (ECGI Finance Working Paper 504/2017). The editorial committee that selected the prize-winning paper is chaired by Prof. Ersnt Maug (University of Mannheim).

The paper begs the question of when boards would emerge endogenously, which is intriguing yet almost impossible to answer because all countries mandate boards. It therefore takes some ingenuity to go back in time to a period when boards were not mandated to address this question. Such work on historical data is time-consuming and requires more manual labor compared to readily accessible electronic databases. Other researchers should feel encouraged to spread their nets a little wider and consider times when our institutions emerged and before data became widely accessible, also as a means of out-of-sample testing.

The Law Series prize of €5,000, sponsored by Allen & Overy LLP, the international law firm, was awarded to Professor John C. Coffee (Columbia Law School) for his paper “The Agency Costs of Activism: Information Leakage, Thwarted Majorities, and the Public Morality” (ECGI Law Working Paper 373/2017). The editorial committee that selected the prize-winning paper is chaired by Prof. Luca Enriques (University of Oxford).

This paper focuses on one of the most hotly debated corporate governance phenomena, hedge fund activism. Professor Coffee posits that “any new structure of governance will have its own unique agency costs”. Based mostly on quantitative evidence, while using case studies, and empirical findings, he then identifies four such sources of agency costs that are specific to hedge fund activism: private benefits, in the form of expense reimbursement for successful campaigns; information leakage when hedge funds succeed to appoint their board nominees (a major focus of the paper); the fact that activists, holding often no more than 10 percent of the shares, can obtain the changes they push for in private settlements with managers, without letting other shareholders, who may have a different (longer-term) view over a company’s trajectory; and the exclusive focus on shareholder value maximization that drives their often successful campaigns: again, that may contrast with other shareholders’ preferences about the goals managers at public corporations should pursue.

Speaking at the ceremony, Professor Marco Becht, ECGI Executive Director said:

The two winning papers this year are excellent examples of solid research with real world applications. ECGI will continue to develop its working paper series in Finance and Law to further augment their global impact. The prizes make a significant contribution in this endeavour.