We document the role of investors at the periphery of control within a firm - ``quasi-insiders'' - in shareholder activism. These agents, who include founders and former executives, launch campaigns in smaller and worse-performing firms than traditional hedge fund activists, and seek greater control and employ more aggressive tactics. While they are less likely to achieve the stated objectives of their campaigns, their campaigns are associated with positive abnormal returns larger than those in hedge fund campaigns and subsequent improvements in operating performance. The presence of a quasi-insider as a blockholder is associated with a significant increase in CEO turnover-performance sensitivity. Overall, our results suggest that quasi-insiders play a meaningful role in governance, especially in firms that are less likely to be targeted by hedge funds.
- Control Rights and Corporate Sustainability Around the World with Alexander Dyck, Karl Lins, Lukas Roth, and Hannes Wagner.
Does insider entrenchment stand in the way of firms making investments to improve corporate sustainability? Using a global sample, we find that it does. In family-controlled firms, where outsiders have limited influence due to clear-cut insider entrenchment, environmental performance is significantly lower. When insiders’ power is reduced through specific actionable governance changes, firms subsequently exhibit better environmental performance. In both widely-held and family-controlled firms, the two governance changes that produce the greatest sustainability improvements are the introduction of majority voting requirements for the board and female board representation. In widely-held firms, strengthening board independence and reducing the age and staleness of the board further increase environmental performance.
I give a brief summary of the institutional details of the U.S. healthcare sector with a special emphasis on healthcare finance. In addition to its large size, U.S. healthcare has four unique features that can be used to help answer corporate finance questions: segmented markets, variation in corporate type, extensive data requirements and recent consolidation. I explain how changes over the last 100 years have led to each of these features. Next, I delve deeper into bargaining between insurance companies and hospitals, Medicare pricing, and hospital capital structure decisions during 2008-2012. Finally, I conclude with a brief discussion on how the Affordable Care Act has contributed to these factors.
Large Index Funds and the Financial Crisis: The Evolution of Mutual Fund Voting with Audra Boone and Stu Gillan.
Our paper examines the dynamic and time-varying nature of mutual fund voting behavior. This analysis is motivated by the increased regulatory focus on proxy issues, and the role of mutual funds, and their potential reliance on proxy advisors, in voting outcomes and governance. These issues have become more salient as the structure of the industry has evolved towards one with larger fund size and a greater proportion of assets under passive management, which can influence the ability and incentive of investors to become informed on key topics. We find that funds are increasingly likely to vote with management and less likely to vote in line with Institutional Shareholder Services (ISS) recommendations. These results are stronger for large mutual fund families and for index funds. We also find evidence suggesting that voting by larger funds leads both ISS recommendations and other fund’s votes.