Title:
Corporate governance in the presence of active and passive delegated investment
Authors:
Adrian Aycan Corumy (Cornell); Andrey Malenko (Michigan) Nadya Malenko (Michigan)
Abstract:
We examine the governance role of delegated portfolio managers. In our model, investors decide how to allocate their wealth between passive funds, active funds, and private savings, and asset management fees are endogenously determined. Funds’ ownership stakes and asset management fees determine their incentives to engage in governance. Whether passive fund growth improves aggregate governance depends on whether it crowds out private savings or active funds. In the former case, it improves governance even if accompanied by lower passive fund fees, whereas in the latter case, it improves governance only if it does not increase fund investors’ returns too much. Regulations that decrease funds’ costs of engaging in governance may decrease total welfare. Moreover, even when such regulations are welfare improving and increase firm valuations, they can be opposed by both fund investors and fund managers.
Bio:
Andrey Malenko is an Associate Professor of Finance at the University of Michigan’s Ross School of Business. His research is in the area of corporate investment and financing, corporate governance, mergers and acquisitions, as well as auction theory and economics of information. Recent work has examined the optimal design of securities, regulation of shareholder voting, auctions of companies, and the role of institutional investors in corporate governance. His work has been published in leading academic journals, such as American Economic Review, Review of Economic Studies, Journal of Finance, Journal of Financial Economics, and Review of Financial Studies. He is the recepient of the 2020 Brattle Prize for a distinguished paper in corporate finance in the Journal of Finance. He is a Research Fellow of Centre for Economic Policy and Research, and an Associate Editor at the Journal of Finance, Management Science, Review of Finance, and Review of Corporate Financial Studies. Before joining Michigan Ross, he was on the faculty of MIT Sloan School Management and Boston College’s Carroll School of Management. Professor Malenko received a Ph.D. in Finance in 2011 from Stanford Graduate School of Business, and Master and Bachelors degrees from New Economic School and NRU – Higher School of Economics in Moscow, Russia. He currently teaches MBA and PhD courses in Corporate Financial Policy and Finance Theory.
