Tracie Woidtke, professor of finance, recently received a research grant from the Manhattan Institute for Public Policy and was one of two featured panelists at the September 2015 Proxy Monitor conference sponsored by the Manhattan Institute.
That conference coincided with the release of her research paper, described in the conference materials as “a groundbreaking empirical study on the relationship between shareholder-proposal activism by state and municipal pension funds and shareholder value.” She also presented this paper to the U.S. Chamber of Commerce in Washington D.C.
The paper addresses the role of state and municipal pension funds, especially in California and New York, as activist institutional investors. These funds are frequently criticized for being influenced more by social and political issues than by their obligation to increase shareholder wealth.
This study examines the relationship between shareholder activism and firm value from 2001–2013, and finds that ownership by public pension funds engaged in social-issue shareholder-proposal activism is negatively related to firm value. For example, the S&P 500 firms targeted by the New York State pension fund with social-issue shareholder proposals subsequently had a 21% lower firm value, and a 91% lower industry-adjusted firm value, than all other firm-years in the sample.
Overall, the results suggest that although pension funds continue to influence companies, pension fund influence is not always associated with positive valuation effects. In particular, negative valuation effects are found when influence is associated with social-issue activism.
Woidtke is also a fellow in the Warren Neel Corporate Governance Center in the Haslam College of Business.