We survey institutional investors to better understand their role in the corporate governance of firms. Consistent with a number of theories, we document widespread behind-the-scenes intervention as ...well as governance-motivated exit. These governance mechanisms are viewed as complementary devices, with intervention typically occurring prior to a potential exit. We further find that long-term investors and investors that are less concerned about stock liquidity intervene more intensively. Finally, we find that most investors use proxy advisors and believe that the information provided by such advisors improves their own voting decisions.
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BFBNIB, FZAB, GIS, IJS, KILJ, NLZOH, NUK, OILJ, SAZU, SBCE, SBMB, UL, UM, UPUK
We study momentum and contrarian trading of foreign and local institutions as well as local individuals using a unique ownership dataset from the Australian stock market. We find that foreign ...institutions are momentum investors, whereas local investors are contrarians. However, momentum trading by foreign institutions is reversed during the Global Financial Crisis indicating that their trading behavior is time-varying. We further show that momentum trading by foreign institutions decreases following a period of low market return, high market illiquidity, high market volatility, or high volatility of the momentum portfolio. Also, momentum trading by foreign institutions predicts momentum profits. We show that the disposition effect partly explains the contrarian trading by local investors, suggesting that foreign institutions’ tendency to momentum trading cannot be solely attributed to their liquidity provision to local investors.
•Foreign institutions are momentum investors, whereas local investors are contrarians.•Foreign investors’ momentum trading is reversed during the Global Financial Crisis.•Momentum trading by foreign investors predicts momentum profits.•Foreign investors’ momentum trading cannot be solely attributed to their liquidity provision to locals.•Disposition effect partly explains the contrarian trading by local investors.
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GEOZS, IJS, IMTLJ, KILJ, KISLJ, NLZOH, NUK, OILJ, PNG, SAZU, SBCE, SBJE, UILJ, UL, UM, UPCLJ, UPUK, ZAGLJ, ZRSKP
According to our survey about climate risk perceptions, institutional investors believe climate risks have financial implications for their portfolio firms and that these risks, particularly ...regulatory risks, already have begun to materialize. Many of the investors, especially the long-term, larger, and ESG-oriented ones, consider risk management and engagement, rather than divestment, to be the better approach for addressing climate risks. Although surveyed investors believe that some equity valuations do not fully reflect climate risks, their perceived overvaluations are not large.
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BFBNIB, INZLJ, NMLJ, NUK, PNG, SAZU, UL, UM, UPUK, ZRSKP
This study investigates the role of foreign institutional investors (FIIs) in restraining earnings management activities of firms under varying levels of investor protection. Firms manage their ...earnings less when independent FIIs are among their shareholders, especially for firms in which monitoring is more valuable – firms in weak investor protection countries and when firms have greater growth opportunities. These effects are robust to a quasi-exogenous shock to FIIs’ shareholdings, unobserved firm heterogeneity, and alternative earning management measures. FIIs are associated with an increase in foreign director presence on corporate boards and audit committees.
We propose a direct measure of abnormal institutional investor attention (AIA) using news searching and news reading activity for specific stocks on Bloomberg terminals. AIA is highly correlated with ...institutional trading measures and related to, but different from, other investor attention proxies. Contrasting AIA with retail attention measured by Google search activity, we find that institutional attention responds more quickly to major news events, leads retail attention, and facilitates permanent price adjustment. The well-documented price drifts following both earnings announcements and analyst recommendation changes are driven by announcements to which institutional investors fail to pay sufficient attention.
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BFBNIB, INZLJ, NMLJ, NUK, PNG, SAZU, UL, UM, UPUK, ZRSKP
This paper assesses whether shareholders drive the environmental and social (E&S) performance of firms worldwide. Across 41 countries, institutional ownership is positively associated with E&S ...performance with additional tests suggesting this relation is causal. Institutions are motivated by both financial and social returns. Investors increase firms’ E&S performance following shocks that reveal financial benefits to E&S improvements. In cross section, investors increase firms’ E&S performance when they come from countries with a strong community belief in the importance of E&S issues, but not otherwise. As such, these institutional investors transplant their social norms regarding E&S issues around the world.
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GEOZS, IJS, IMTLJ, KILJ, KISLJ, NLZOH, NUK, OILJ, PNG, SAZU, SBCE, SBJE, UILJ, UL, UM, UPCLJ, UPUK, ZAGLJ, ZRSKP
Do investors care about carbon risk? Bolton, Patrick; Kacperczyk, Marcin
Journal of financial economics,
November 2021, 2021-11-00, 20211101, Volume:
142, Issue:
2
Journal Article
Peer reviewed
Open access
We study whether carbon emissions affect the cross-section of US stock returns. We find that stocks of firms with higher total carbon dioxide emissions (and changes in emissions) earn higher returns, ...controlling for size, book-to-market, and other return predictors. We cannot explain this carbon premium through differences in unexpected profitability or other known risk factors. We also find that institutional investors implement exclusionary screening based on direct emission intensity (the ratio of total emissions to sales) in a few salient industries. Overall, our results are consistent with an interpretation that investors are already demanding compensation for their exposure to carbon emission risk.
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GEOZS, IJS, IMTLJ, KILJ, KISLJ, NLZOH, NUK, OILJ, PNG, SAZU, SBCE, SBJE, UILJ, UL, UM, UPCLJ, UPUK, ZAGLJ, ZRSKP
ABSTRACT
This paper studies institutional investors’ incentives to be engaged shareholders. In 2017, the average institution gains an extra $129,000 in annual management fees if a stockholding ...increases 1% in value, considering both the direct effect on assets under management and the indirect effect on subsequent fund flows. The estimates range from $19,600 for investments in small firms to $307,600 for investments in large firms. Institutional shareholders in one firm often gain when the firm's competitors do well, by virtue of institutions’ holdings in those firms, but the impact of common ownership is modest in the most concentrated industries.
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BFBNIB, FZAB, GIS, IJS, KILJ, NLZOH, NUK, OILJ, SAZU, SBCE, SBMB, UL, UM, UPUK
Using data on China's split-share structure reform that floats non-tradable shares, we find that Qualified Foreign Institutional Investors (QFIIs) have greater influence over the controlling state ...shareholders than local mutual funds. QFIIs are less prone to political pressure and are more likely to participate in arm's-length negotiation and monitoring in state-controlled companies. The presence of QFII ownership shortens the duration of the reform and increases the compensation to minority tradable shareholders. Unlike local mutual funds, the positive relationship between state ownership and the compensation to tradable shareholders increases with the presence of QFII ownership. Furthermore, QFIIs increase the likelihood of revision in reform proposals among state-controlled companies. Domestic mutual funds seem to make earnest negotiations in non-state-controlled companies in the absence of political pressure. Evidence suggests that involving foreign institutional investors in corporate governance practices can significantly reduce expropriation by controlling shareholders in emerging markets.
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GEOZS, IJS, IMTLJ, KILJ, KISLJ, NUK, OILJ, PNG, SAZU, SBCE, SBJE, UL, UM, UPCLJ, UPUK
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