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Frontiers of Corporate Governance

Paper Session

Saturday, Jan. 4, 2020 8:00 AM - 10:00 AM (PDT)

Manchester Grand Hyatt, Seaport G
Hosted By: American Finance Association
  • Chair: Kelly Shue, Yale University

Reputation and Investor Activism: A Structural Approach

Travis Johnson
,
University of Texas-Austin
Nathan Swem
,
Federal Reserve Board

Abstract

We measure the impact of reputation for proxy fighting on investor activism by estimating a dynamic model in which activists engage a sequence of target firms. Our estimation produces an evolving reputation measure for each activist and quantifies its impact on campaign frequency and outcomes. We find that high reputation activists initiate 3.5 times as many campaigns and extract 85% more settlements from targets, and that reputation-building incentives explain 20% of campaign initiations and 19% of proxy fights. Our estimates indicate these reputation effects combine to nearly double the value activism adds for target shareholders.

The Party Structure of Mutual Funds

Ryan Bubb
,
New York University
Emiliano Catan
,
New York University

Abstract

We investigate the structure of mutual funds’ corporate governance preferences as revealed by how they vote their shares in portfolio companies. We apply unsupervised learning tools from the machine learning literature to analyze a comprehensive dataset of mutual funds’ votes and find that a parsimonious two-dimensional model can explain the bulk of mutual fund voting. The two dimensions represent competing visions of shareholder rights and modes of shareholder engagement with management. Model-based cluster analysis shows that mutual funds are organized into three ‘parties’—the Traditional Governance Party, the Shareholder Intervention Party, and the Shareholder Veto Party—that follow distinctive philosophies of corporate governance and shareholders’ role. Our preference measures for mutual funds generate a range of insights about the broader system of corporate governance.

Corporate Capture of Blockchain Governance

Daniel Ferreira
,
London School of Economics
Jin Li
,
University of Hong Kong
Radoslawa Nikolowa
,
Queen Mary University of London

Abstract

We develop a theory of blockchain governance. In our model, the proof-of-work system, which is the most common set of rules for validating transactions in blockchains, creates an industrial ecosystem with specialized suppliers of goods and services. We analyze the interactions between blockchain governance and the market structure of the industries in the blockchain ecosystem. Our main result is that the proof-of-work system leads to a situation where the governance of the blockchain is captured by a large firm.

How Do Individual Politicians Affect Privatization? Evidence from China

Hong Ru
,
Nanyang Technological University

Abstract

This paper investigates how politicians’ career concerns affect privatization outcomes in China. Privatizations increase firm efficiency and productivity, which help local politicians’ career advancements under GDP tournaments in China. Local politicians connected to top political leaders have high promotion chances regardless of GDP growth. Consequently, the privatizations conducted by connected local politicians achieve lower efficiency gains. For identification, we exploit discontinuities in local politicians’ connections and privatization outcomes around the compulsory retirement age of top politicians. Moreover, older and less educated politicians have lower promotion chances and thus have greater need for GDP growth and choose privatizations with better outcomes.
Discussant(s)
Arthur Korteweg
,
University of Southern California
Michael Weisbach
,
Ohio State University
Barry Nalebuff
,
Yale University
Dirk Jenter
,
London School of Economics
JEL Classifications
  • G3 - Corporate Finance and Governance