Do Index Funds Monitor?

Do Index Funds Monitor?

Davidson Heath, Daniele Macciocchi, Roni Michaely, Matthew C. Ringgenberg

Series number :

Serial Number: 
638/2019

Date posted :

November 20 2019

Last revised :

January 28 2020
SSRN Share

Keywords

  • Corporate governance • 
  • index funds • 
  • monitoring • 
  • passive investing • 
  • voting

Passively managed index funds now hold over 25% of U.S. mutual fund and ETF assets. The rise of index investing raises fundamental questions about monitoring and corporate governance. We show that, relative to active funds, index funds are less likely to vote against firm management on contentious corporate governance issues.

Across a variety of tests, we also find no evidence that index funds engage with firm management to improve governance. Moreover, higher index fund ownership leads to less independent boards and worse corporate governance. Our result show the rise of index investing is shifting control from investors to firm managers.

Authors

Real name:
Matthew C. Ringgenberg
Real name:
Davidson Heath
Real name:
Daniele Macciocchi
Professor
Real name:
Roni Michaely
University of Geneva - Geneva Finance Research Institute (GFRI)