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  5. Corporate Finance: Corporate Governance (Shareholder Monitoring/Voting)
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Corporate Finance: Corporate Governance (Shareholder Monitoring/Voting)

Paper Session

Sunday, Jan. 7, 2024 1:00 PM - 3:00 PM (CST)

Marriott Rivercenter, Grand Ballroom Salon D
Hosted By: American Finance Association
  • Chair: Elisabeth Kempf, Harvard University

Voting Choice

Andrey Malenko
,
Boston College
Nadya Malenko
,
Boston College

Abstract

Traditionally, fund managers cast votes on behalf of investors whose capital they manage. Recently, this system has come under intense debate given the growing concentration of voting power among a few asset managers and disagreements over environmental and social issues. Major fund managers now offer their investors a choice: delegate their votes to the fund or cast votes themselves ("voting choice"). This paper develops a theory of delegation of voting rights and studies the implications of voting choice for investor welfare. If voting choice is offered because investors have heterogeneous preferences, then investors may retain their voting rights excessively, inefficiently prioritizing their private preferences over information. As a result, investors on aggregate are not always better off if voting choice is offered to them. In contrast, if voting choice is offered to aggregate investors' heterogeneous information, then voting choice is generally efficient, increasing investor welfare. However, if information collection is costly, voting choice may lead to coordination failure, resulting in less informed voting outcomes.

Propagation of Climate Disasters through Ownership Networks

Matt Gustafson
,
Pennsylvania State University
Ai He
,
University of South Carolina-Columbia
Ugur Lel
,
University of Georgia
Zhongling Qin
,
Auburn University

Abstract

Climate disasters propagate through common ownership networks. Institutional investors in firms hit by climate-related disasters are more likely to vote in favor of climate proposals at their other portfolio firms. This effect is short-lived, larger in periods of high attention to climate change, and concentrated in carbon-intensive firms. Aggregating investor-level shocks to the firm level, we find that firms with impacted investors exhibit an immediate reduction in climate change sentiment on conference calls. Over time, they lower emissions and energy use, and enhance climate focus in governance. These findings highlight the ripple effects of climate disasters through investment networks, influencing corporate behavior towards environmental responsibility.

The Changing Landscape of Corporate Governance Disclosure: Impact on Shareholder Voting

David Becher
,
Drexel University
Michelle Lowry
,
Drexel University
Jared Wilson
,
Indiana University

Abstract

Many mutual funds satisfy their fiduciary duty to vote on portfolio firms’ directors by following the recommendations of proxy advisory service companies such as ISS. However, companies complain that ISS recommendations are misguided. A rational response to such frictions would be for firms to decrease investors’ costs of evaluating directors’ expertise. Consistent with this conjecture, we find that firms increasingly disclose directors’ expertise in image-based formats. These disclosures lead to less reliance on ISS, particularly in cases where ISS’s recommendations tend to be less precise. An analysis of the channels underlying the higher voting support reveals both the upside and downside of these image-based disclosures: on average these disclosures are informative, but they also facilitate window dressing.

Discussant(s)
Magdalena Rola-Janicka
,
Imperial College London
Oliver Spalt
,
University of Mannheim
Samuel Hartzmark
,
Boston College
JEL Classifications
  • G3 - Corporate Finance and Governance