The Systemic Governance Influence of Universal Owners: Evidence From an Expectation Document

The Systemic Governance Influence of Universal Owners: Evidence From an Expectation Document

Ruth V. Aguilera, Vicente J. Bermejo, Javier Capapé, Vicente Cuñat

Series number :

Serial Number: 
625/2019

Date posted :

August 28 2019

Last revised :

August 17 2021
SSRN Share

Keywords

  • Corporate governance • 
  • Institutional ownership • 
  • Expectation DocumentS

Universal owners can systemically diffuse their investment preferences to a large share of the market. We use the unexpected release of a corporate governance expectation document by Norway’s sovereign wealth fund as a natural experiment to understand how active universal investors can influence firms’ governance.

Expectation documents are an emerging activism tactic used to enhance a broad range of sustainability practices. We introduce a novel decomposition to explore the effectiveness of expectation documents. We show how firms adapted to the fund’s new portfolio wide governance expectations expressed in the document and explore their heterogeneous response across ownership levels and firm characteristics. We also show how the fund changed its investment policy to meet its new stated preferences, even at the expense of financial returns. Overall, our research uncovers the potential wide-spread effectiveness of a low-cost activism tactic that universal owners can deploy to influence sustainability globally.

Authors

Real name:
Javier Capapé
Dr
Real name:
Research Member
Department of Finance, London School of Economics
Real name:
Vicente J. Bermejo
Real name:
Ruth V. Aguilera