How do passive funds act as active owners? Evidence from mutual fund voting records

The rise of passive institutional investors in the U.S. stock market raises questions about the governance implications to their portfolio firms. While the existing literature documents positive governance changes when passive institutional ownership displaces retail ownership, it remains unclear how passive institutional ownership approaches corporate governance differently than their active peers. This paper compares the proxy voting behaviors between same-family passive and active mutual funds with identical investment styles. We find that passive funds are not more likely to vote in favor of governance reforms than active funds. We also provide suggestive evidence that besides voting, the influence of passive funds on corporate governance also operates through a “behind the scenes” channel.     

Foreign institutional investment: Is governance quality at home important?

This paper examines the investment preferences of foreign institutional investors investing in the U.S. market. We analyse both firm and country-level determinants that influence the foreign institutional investors' allocation choices. At the country level, we find that the governance quality in a foreign institutional investor's home country is a determinant of their decision to invest in the U.S. market. Our findings indicate that investors who come from countries with governance setups similar to that of the U.S. invest more in the United States. The investment levels though, are more pronounced for countries with governance setups just below that of the U.S. Our results are consistent with both the ‘flight to quality’ and ‘familiarity’ arguments, and help reconcile prior contradictory empirical evidence. At the firm level, we present unequivocal evidence in favour of the familiarity argument. Foreign institutional investors domiciled in countries with high governance quality prefer to invest in U.S. firms with high corporate governance quality. This effect is primarily driven by grey (non-monitoring) institutional investors.     

Why Do European Firms Issue Convertible Debt?

We survey European managers to gain some insights into motivations of convertible issuance. Our analysis shows that a majority of firms issue convertibles as ‘delayed equity’ and as ‘debt sweetener’. Managers also use convertibles to avoid short‐term equity dilution and to signal firm's future growth opportunities. We document a large cross‐sectional variation across firms in rationales for issuing convertibles and find mixed support for most theoretical models. Our evidence suggests that the popularity of convertibles is driven primarily by their versatility in adjusting their design to fit the financing needs of individual firms, and by their increased demand among institutional investors.     

Changes in the Public Accounts Committee of a Less Developed Democratic Country: A Field Study

This paper complements prior studies on the public accounts committees (PACs) by considering the notions of ‘agency’ and ‘structure’ of institutional theory in tandem in understanding the changes in structures and activities of the PAC of a less‐developed democratic country – Bangladesh. While prior studies examined ‘external’ institutional pressures on the development and operation of the PAC in various settings, the role of internal and external institutional agents in this context has not been their primary focus. Our empirical evidence from a qualitative field study indicates that over the past two decades, Bangladesh's PAC underwent significant changes to its internal governance structures and administrative processes. While these changes were indirectly driven by pressures from international donor agencies, PAC members and the national audit office played a key role as institutional agents in initiating and institutionalising the changes in PAC governance and operation.     

Do Firms Decouple Corporate Governance Policy and Practice?

We test whether Thai listed firms with higher levels of good governance policy adoption are less likely to violate listing rules and laws designed to protect shareholders. Our results suggest that firms on average implement, substantively as opposed to symbolically, recommended governance policies, as violations occur less frequently among firms with higher governance policy adoption scores. However, we also find evidence of symbolic governance among a small group of ‘talk‐only’ firms that issue statements about governance while lagging in the adoption of policies related to shareholder rights and the board of directors.     

From objective to constituted risk: an alternative approach to safety in strategic technological innovation in the European Union

Safety is a legitimate means of limiting technological innovation in our societies. However, the potential socio-economic impact of curtailing techno-industrial progress on the grounds of safety means that risk governance policies tend to restrict the range of legitimate approaches to safety on the principle that it can only be discussed in the frame of an allegedly objective scientific representation of risk. In European risk governance, socio-economic factors such as the underlying innovation rationales and goals are not openly considered to be related to the constitution of safety, but tend largely to be treated as factors of subjective reaction towards risk and technology. This paper seeks to overcome that approach by proposing a ‘constitutive’ understanding of how risk and socio-economic factors and dynamics relate, focusing in particular on the ‘safe and responsible’ development of nanotechnology in the European Union (EU). I argue that risk is constituted according to socio-economic considerations, and that the controllability of the environmental and health risks of nanotechnology in the EU is assumed on principle in the very strong institutional commitment to the industrial exploitation of nanotechnology R&D. Using a constitutive approach, we may legitimately conceive a broader set of potential safety scenarios, while at the same time highlighting major obstacles to implementing more critical constitutions of techno-industrial risk in the framework of a highly competitive knowledge-based global economy.     

Climate-change lore and its implications for climate science: Post-science deliberations?

Using of the results of survey questionnaires distributed to climate scientists who focus on the German Baltic coast, regional political decision makers on the German Baltic coast and weather observations from the same region, this paper assesses the existence of developing climate-change lore and the implications for the role of climate science in the science–policy interface. The Oxford Dictionary (1993) provides one definition of lore as ‘A doctrine, a precept; a creed, a religion.’ This is the definition adopted for this paper. The paper concludes that the discrepancies among weather observations, scientific assessments and decision makers’ perceptions suggest that climate-change lore exists, or is coming into existence. The paper then discusses the implications for the science–policy interface and suggests that given current trajectories, science could come to play a secondary role to climate-change lore in regional political decision making concerning climate change. To the truth-to-power model of the science–policy interface and the tenets of post-normal science, three additional possibly evolving science–policy configurations (as pertaining to the climate change issue) are offered.     

Minority Stockholders' Protection in a New Corporate Control Law: Market Implications in an Emerging Economy

This paper analyzes the effect of a new corporate governance law in the emerging capital market of Chile to determine if capital markets perceived the intended protection of minority stockholders against wealth expropriation as effective. The unique nature of the new law allowed for voluntary adoption during the initial three-year period, after which it became mandatory. We find no evidence of superior abnormal returns for those firms voluntarily adopting the new law versus those forced to accept the new law as it became mandatory. Trading volume also increased for those not adopting and declined for those that did voluntarily adopt. These results indicate that the capital markets did not perceive voluntary adoption of the new law as effective protection for minority shareholders. We also find a greater presence of institutional investors in the ownership structure of those firms not voluntarily adopting the new law, indicating their monitoring role by investing in firms with better corporate governance practices. Our results suggest that, in the Chilean case, the presence of strong institutional investors is as effective a corporate governance mechanism as is the new law.     

Required CEO stock ownership: Consequences for risk-taking and compensation

In response to corporate governance concerns, SEC disclosure rules, and pressure from Institutional Shareholder Services, most large U.S. public firms have adopted executive stock ownership requirements (‘SORs’) in recent years. Compared to CEOs already in compliance, CEOs who have not yet fulfilled the requirement at adoption subsequently increase stockholdings, exposing themselves to more company-specific risk, potentially providing risk-reduction incentives and diminishing their subjective valuation of firm equity. We find that these CEOs on average subsequently reduce firm risk through diversifying M&A, less financial leverage, and smaller R&D investment. They experience a deterioration in firm performance and valuation, each associated with firms that do reduce risk, but receive significantly increased stock grants. Our evidence suggests that boards should exercise judgment when adopting this popular governance initiative.     

Does stronger corporate governance constrain insider trading? Asymmetric evidence from Australia

We investigate the role of internal corporate governance in limiting opportunities for ASX company ‘insiders’ to extract abnormal returns from trading ‘own shares’. We show that stronger governance translates into more restrictive insider trading policies and, while not resulting in lower insider purchase volumes, values or profits, it does reduce insider selling profitability. Firm size and increasing trading policy restrictiveness is associated with reduced insider purchase profitability while insider sale profitability is reduced by aggregate governance, trading restrictions and increasing trading policy restrictiveness. We conclude that internal firm governance constrains insider sales but not purchases, providing contrarian trading signals.     

The politics of urban climate risks: theoretical and empirical lessons from Ulrich Beck’s methodological cosmopolitanism

Abstract

In the face of global climate risks, world cities increasingly figure in academic and policy discourse as strategic spaces for harnessing the expertise and governance capacity needed to steer societies toward more sustainable and low-carbon futures. This article reviews existing approaches to the study of urban climate politics, by way of asking what contribution Ulrich Beck’s theory of world risk society – and principles of methodological cosmopolitanism – make to such epochal conversations? Three main analytical frameworks stand out: low-carbon transition literature highlight generic processes of socio-technical ‘greening’ of urban infrastructures; urban policy mobility work documents growing intercity networks around climate and sustainability; and actor–network theory-informed takes on urban controversies engage the localized politics of specific city-based ‘riskscapes’. While each framework makes valuable contributions, this article suggests that all of them remain under-theorized from the point of view of the specific dynamics of local–global interdependencies in urban climate risk politics. In response, the article draws on Beck in outlining the contours of new urban–cosmopolitan risk communities. To this effect, empirical studies into large-scale East Asian and European port cities is used to illustrate how a shared transnational risk imaginary (e.g. of future sea-level rises) may help spur collective action and new forms of trans-boundary solidarity. Reflecting on such research practices, the article ends by pointing to the need for reworking methods of (multi-sited) ethnography and comparison as central parts of realizing Ulrich Beck’s cosmopolitan sociology in the domain of urban climate risks.     

Corporate governance and risk reporting in South Africa: A study of corporate risk disclosures in the pre- and post-2007/2008 global financial crisis periods

The 2007/2008 global financial crisis has reignited the debate regarding the need for effective corporate governance (CG) through sound risk management and reporting practices. This paper, therefore, examines the crucial policy question of whether the quality of firm-level CG has any effect on the quality and extent of corporate risk disclosures (CRD) in South Africa (SA) with particular focus on the pre- and post-2007/2008 global financial crisis periods. Using one of the largest datasets to-date on CG and CRD, from 2002 to 2011, and distinctively drawing on a multiple theoretical perspective, we find that CRD are largely ‘non-financial’, ‘historical’, ‘good news’ and ‘qualitative’ in nature over the ten-year period investigated. We also find that block ownership and institutional ownership are negatively associated with the extent of CRD, whilst board diversity, board size and independent non-executive directors are positively related to the extent of CRD. By contrast, dual board leadership structure has no significant connection with the extent of CRD. Our results are robust across a raft of econometric models that adequately address different types of endogeneity problems, as well as alternative CG and CRD proxies. Our findings are largely consistent with the predictions of our multi-theoretical framework that incorporates insights from agency, legitimacy, institutional, resource-dependence, and stakeholder theories.     

Climate change adaptation: Is there a role for intervention research?

While climate change will expose regions to similar impacts, the extent of those impacts and effective response at the local level will be determined not only by the location's sensitivity and vulnerability but also by local groups and individuals’ capacity, including their institutional links, social networks and motivation to action. In parallel, scientific information and research plays a critical role in informing climate change adaptation by providing both an improved understanding of the actual climate risks and response alternatives.The paper focuses on two local-scale intervention research projects undertaken in urbanised coastal areas in Brazil and in Australia concentrated on improving the dialogue between ‘those who make science’ and ‘those who use science to make decisions’ in order to make climate science more useful, and creating purposeful collective action, respectively. A conceptual model is devised to investigate how intervention research could aid adaptive capacity by generating new knowledge and facilitating change towards climate change adaptation at the local level. Drawing on the findings, a framework is proposed to advance the role of intervention research in policy development for enhancing adaptive capacity.     

Style investing and firm innovation

We document that transient, dedicated and quasi-indexed institutional investors exhibit a high degree of within-group heterogeneity with respect to their investment styles (i.e., growth, value, and balanced). We find that growth institutional investors enhance firm innovation in terms of R&D expenditures, R&D intensity, quantity and quality of patents and patent radicalness while value institutional investors impede innovation. Balanced investors have no significant association with innovation. Findings are consistent with style investing literature that growth and value styles are substitutes. Using investment styles, we present evidence that reconcile literature’s mixed findings on how transient and dedicated investors affect R&D and innovation, and why quasi-indexed investors, the largest group among all investors, have an insignificant effect. We also show that the effect of institutional investors depends on the firm’s relative level of innovativeness.     

New development: Corporatization of local authorities in England in the wake of austerity 2010–2016

A key institutional driver of current reforms within English local government is ‘alternative service delivery’. Our review of councils’ annual accounts between 2010/11 and 2016/17 suggests ‘corporatization’—the creation of local authority companies—is a growing phenomenon across the whole of English local government. This represents such a significant and far-reaching development in the governance, performance and efficiency of local public services that it constitutes a major field-level change at the interstices of the institutions of state, market, corporation and community. In this article, the authors briefly sketch ways corporatization could be regarded as a field-level change, before presenting findings and reflecting on their implications.     

Cultural theory and risk perception: a proposal for a better measurement

Why do members of the public disagree – sharply and persistently – about facts on which expert scientists largely agree? We designed a study to test a distinctive explanation: the cultural cognition of scientific consensus. The ‘cultural cognition of risk’ refers to the tendency of individuals to form risk perceptions that are congenial to their values. The study presents both correlational and experimental evidence confirming that cultural cognition shapes individuals’ beliefs about the existence of scientific consensus, and the process by which they form such beliefs, relating to climate change, the disposal of nuclear wastes, and the effect of permitting concealed possession of handguns. The implications of this dynamic for science communication and public policy‐making are discussed.     

Corporate governance,institutions, markets,and social factors

We use a comprehensive set of country-level social and institutional measures to study the relationship between country-level factors and firm-level governance. We also examine the roles of the country’s financial development status and the firm’s external financing needs in influencing the firm’s governance framework. Using a sample of 43 countries and 3301 firms, we find that country-level factors explain a large part of the variation in firm-level governance across countries. We also find evidence that the relationship between country-level factors and firm-level mechanisms is best represented as a moderating relationship. The results also indicate the presence of a complementary relationship, albeit sometimes insignificant, between firm-level governance and all the country-level variables included in our study. When accounting for the effect of a country’s financial development status and a firm’s external financing needs, we find evidence of a positive relationship between firm-level governance and firm returns and value for firms with high financing needs which operate in countries with high financial development.     

What Is the Way Forward for IASB’s Research Programme under the Evidence-Supported Approach? Some Analyses and Comments Based on the 2015 Agenda Consultation

The purpose of this paper is twofold: (1) the paper reviews the International Accounting Standards Board (IASB's) evidence-supported approach to standard setting, in particular the very broad definition of evidence that does not distinguish between scientific evidence used for developing the normative foundation (the standards) and observations in practice. Based on comparisons with medicine and auditing, we argue that there are good reasons for the IASB to separate scientific evidence from other sources of information. As producers of scientific evidence, the academic community must consider whether better alignment between publishing incentives and standard setting can be achieved. (2) Examining the 2015 Agenda Consultation, the ‘top-five’ research projects were identified: ‘Disclosure Initiative – Principles of Disclosure’, ‘Primary Financial Statements’, ‘Financial Instruments with Characteristics of Equity’, ‘Business Combinations under Common Control’, and ‘Goodwill and Impairment’. In order to further support evidence-informed standard setting, we provide research-based comments on these projects (based on the European Accounting Association's Agenda Consultation comment letter).     

Accountability and risk governance: a scenario-informed reflection on European regulation of GMOs

Regulating risks in the face of scientific uncertainty poses a particular challenge to policy-makers. Such problems are amplified when decisions are taken in a multi-level framework of supranational governance. The genetically modified organism (GMO) regulation in the European Union constitutes an especially salient issue of risk governance in a multi-lateral arena, as the topic is politically highly visible and decision-making is slow and contested. Furthermore, as authority is dispersed among multiple actors, European risk governance is in need of adequate mechanisms ensuring that decision-makers justify and account for their behavior. While legitimacy aspects of GMO governance have widely been examined, accountability relations within the field of GMO risk governance have hitherto only weakly been explored. Hence, this paper analyzes the question of who can be held accountable under the complex system of supranational risk governance. This paper claims that mere adherence by actors to the regulatory procedures during the decision-making process does not necessarily imply that overall accountability can be secured, resulting in ‘organized irresponsibility’. Although certain piecemeal accountability may exist, establishing overall accountability is complicated, precisely as a result of the complex system of interwoven rules.