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- Title
Public pension fund ownership and firm performance.
- Authors
Jiao, Yawen; Ye, Pengfei
- Abstract
Equity ownership by public pension funds (PPFs) is widely used in the literature (see, e.g., Cremers and Nair ; Dittmar and Mahrt-Smith ) as a measure of the strength of shareholder monitoring/governance. This paper raises caution on such practices by illustrating an inverted- U shape relationship between PPF ownership and firms' future performance, measured by stock returns and operating performance: during 1985-2005, future performance first increases, then declines in aggregate equity ownership by PPFs. Our results suggest that PPFs' presence is consistent with shareholder value maximization when they have moderate influence on firm management, whereas excessive PPF ownership may facilitate PPF managers' pursuits of political interests and destroy shareholder value. Therefore, it is important to impose an upper bound to PPF ownership when measuring the strength of shareholder monitoring/governance.
- Subjects
PENSION trusts; ORGANIZATIONAL performance; EQUITY (Law); RATE of return on stocks; STOCKHOLDER wealth; INDUSTRIAL management; GUARANTEED investment contracts; SOCIAL security
- Publication
Review of Quantitative Finance & Accounting, 2013, Vol 40, Issue 3, p571
- ISSN
0924-865X
- Publication type
Article
- DOI
10.1007/s11156-012-0288-x