Intervenant: Paula Cocoma (Frankfurt School of Finance and Management)
Titre: Active vs. Passive: Information Acquisition in the Presence of Corporate Governance
We study the impact of passive investors’ corporate governance on market efficiency. In an information model, we allow investors to affect a firm’s value via corporate governance. We show that when passive investors’ corporate governance increases value, it generates more inefficiencies than when it destroys value. In equilibrium, passive investors hold the market, while informed active investors only hold good firms, leaving bad firms governed by passive investors. When passive investors increase a firm’s value, they increase it more for bad than for good firms, thereby generating inefficiencies by reducing incentives to acquire information and causing capital misallocation. We discuss the challenges policymakers face when regulating passive investors’ participation in corporate governance and provide unique empirical predictions. We conclude with two extensions: ESG policies and product market competition. We show that passive investors’ support of ESG policies generates inefficiencies, while passive investors’ support of anti-competitive strategies generates a more efficient allocation of capital.