We study dominated products in the market for U.S. equity exchange-traded funds (ETFs). We identify a large number of dominated ETFs with returns that are highly correlated with those of cheaper, more liquid competitors. Counterintuitively, these dominated ETFs attract excess capital relative to expectations based on fund characteristics related to fees, liquidity, performance, strategy uniqueness, and investor awareness. We estimate the aggregate cost to investors from allocating capital to dominated ETFs to be \$1.0 billion to \$6.7 billion from 2000 to 2018. These costs are growing over time as newly listed ETFs claim unique strategies despite high correlations with cheaper ETFs.
- The Role of Proxy Advisors and Large Passive Funds in Shareholder Voting: Lions or Lambs? with Audra Boone and Stu Gillan.
Large passive mutual funds and proxy advisory firms have faced criticism both for being too powerful and not exercising diligence in proxy voting. We document that the "Big 3" passive fund families, Blackrock, State Street, and Vanguard, are increasingly likely to vote with management, and their support is paramount in approving controversial proposals. Meanwhile, mutual funds overall are less likely to vote according to ISS recommendations, and ISS recommendations are not predictive of controversial votes passing, especially post-financial-crisis. Our findings suggest that the Big 3 actively vote their proxies, and that ISS appears less influential over time.
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.