Do Index Funds Monitor?

Davidson Heath; Daniele Macciocchi; Roni Michaely; Matthew C Ringgenberg

doi:10.1093/rfs/hhab023

journal article Feb 23, 2021

Do Index Funds Monitor?

Davidson Heath Daniele Macciocchi Roni Michaely Matthew C Ringgenberg

Review of Financial Studies Vol. 35 No. 1 pp. 91-131 · Oxford University Press (OUP)

View at Publisher Save 10.1093/rfs/hhab023

Abstract

Abstract
Passively managed index funds now hold over 30$\%$ of U.S. equity fund assets; this shift raises fundamental questions about monitoring and governance. We show that, relative to active funds, index funds are less effective monitors: (a) they are less likely to vote against firm management on contentious governance issues; (b) there is no evidence they engage effectively publicly or privately; and (c) they promote less board independence and worse pay-performance sensitivity at their portfolio companies. Overall, the rise of index funds decreases the alignment of incentives between beneficial owners and firm management and shifts control from investors to managers.

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Metrics

166

Citations

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References

Details

Published: Feb 23, 2021
Vol/Issue: 35(1)
Pages: 91-131
License: View

Authors

D

Davidson Heath

David Eccles School of Business, University of Utah

D

Daniele Macciocchi

Miami Herbert Business School, University of Miami

R

Roni Michaely

University of Hong Kong and ECGI

M

Matthew C Ringgenberg

David Eccles School of Business, University of Utah

Cite This Article

Davidson Heath, Daniele Macciocchi, Roni Michaely, et al. (2021). Do Index Funds Monitor?. Review of Financial Studies, 35(1), 91-131. https://doi.org/10.1093/rfs/hhab023

Do Index Funds Monitor?

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