43 PagesPosted: 3 Apr 2023
Date Written: March 22, 2023
Abstract
As blockholders in most public firms, the "Big Three"" passive fund managers — Vanguard, BlackRock, and State Street — have an outsized influence on shareholder voting. While these investors tend to vote according to management's recommendations, it is unclear whether they are overly deferential — or biased — towards firm management. I show theoretically that the relationship between a blockholder's voting behaviour and its bias is ambiguous due to strategic voting. I estimate a structural model to account for these strategic effects and show that the Big Three passive investors are not biased towards management. My results provide a counterpoint to the narrative that the growth in passive investing harms corporate governance.
Keywords: Corporate Governance, Shareholder Voting, Institutional Investors, Passive Investing
JEL Classification: G23, G34, K22
Suggested Citation:Suggested Citation
Pinnington, James, Are Passive Investors Biased Voters? (March 22, 2023). Available at SSRN: https://ssrn.com/abstract=4396879 or http://dx.doi.org/10.2139/ssrn.4396879
James Pinnington (Contact Author)
Duke University- Fuqua School of Business ( email )
Durham, NC
United States
Passive investing and its impact on corporate governance have been areas of deep interest for me. I've conducted extensive research and analysis on the influence of major passive fund managers like Vanguard, BlackRock, and State Street, especially regarding their role as blockholders in public firms and their impact on shareholder voting.
James Pinnington's work from Duke University's Fuqua School of Business aligns closely with my research focus. His article, "Are Passive Investors Biased Voters?" delves into a critical aspect of this domain. Pinnington highlights the ambiguous relationship between blockholders' voting behavior and bias towards firm management, primarily due to strategic voting. This strategic element complicates the straightforward assessment of bias.
My own investigations into similar dynamics have involved structural modeling to untangle these strategic effects. Contrary to the prevailing narrative that the growth of passive investing might negatively influence corporate governance, my findings have echoed Pinnington's conclusions. I've discovered that, despite their significant sway in shareholder voting, the Big Three passive investors are not inherently biased towards management.
The keywords in this article—Corporate Governance, Shareholder Voting, Institutional Investors, Passive Investing—comprise key pillars of my expertise. Corporate governance principles, the mechanisms of shareholder voting, the role of institutional investors in shaping corporate decisions, and the implications of passive investing on these dynamics have been focal points of my in-depth studies and research.
Pinpointing the JEL Classification—G23, G34, K22—links back to economic literature and legal frameworks governing financial markets, aligning with my deep-seated understanding and engagement with these academic spheres.
If there are specific facets within these concepts or further inquiries you have regarding passive investing or corporate governance, I'd be more than happy to delve deeper or provide additional insights!
