Shareholder engagement and voting play a crucial role in how investors govern corporations and influence stock prices in the financial market. Xuan Li’s thesis “Essays on Shareholder Engagement and Voting delves into the mechanics and implications of investor’s exercise of shareholder rights and the impact of shareholder engagement and voting.
Xuan Li, who has been a researcher in Climate Futures, defended her thesis at NHH the Norwegian School of Economics in May 2024. The thesis consists of three papers, each addressing different facets of the topic.
Paper 1: Home Bias in Shareholder Voting
The first chapter examines the influence of geographic distance on voting behavior among institutional investors globally. The study highlights that investors are more likely to side with management in domestic firms as opposed to foreign ones, especially when Institutional Shareholder Services (ISS) recommendations conflict with management. This tendency towards home bias is attributed to the lower costs associated with voting for domestic firms, including reduced legal expenses and the advantage of local information. The findings suggest a strong correlation between geographic proximity and voting patterns, showcasing a preference for domestic investments.
Paper 2: Two-Dimensional Activeness – Active Ownership and Active Portfolio Management
In the second chapter, the authors investigate the voting strategies of mutual funds within a framework based on relative performance incentives. The research reveals that mutual funds are more likely to engage actively in voting for companies where their portfolio weights diverge from benchmark weights, with a particular emphasis on firms that are overweighted by the fund managers. This behavior indicates that mutual funds concentrate their monitoring efforts on select portfolio companies deemed as prime investments, driven by indirect incentives for shareholder engagement. The study underscores the strategy mutual funds employ to influence their investees through active ownership.
Paper 3: Shareholder Activism and the Green Transition
The third chapter explores the effectiveness of shareholder resolutions in tackling real-world challenges such as climate change. The research questions whether shareholder proposals can truly drive environmental innovation in companies. By employing a combination of matching and a difference-in-differences design, the authors find that corporate environmental innovation tends to decline after shareholder activism. The findings are consistent across various measures, including the materiality of the proposals and whether they were filed by institutional investors. This chapter highlights the current limitations of shareholder proposals under existing regulatory frameworks, suggesting a need for revisiting the policies to enhance their impact on environmental issues.
Together, these papers provide a comprehensive evaluation of how institutional investors leverage shareholder engagement and voting to exert influence over their investees. The research offers valuable insights into investor behavior, the efficacy of shareholder voting, and the broader implications on corporate governance and environmental responsibility.
