Bebchuk & Hirst Study of Index Funds Wins European Corporate Governance Institute Prize

Tami Groswald Ozery is a co-Editor of the Forum and a Fellow at the Harvard Law School Program on Corporate Governance.

Related research from the Program on Corporate Governance includes The Agency Problems of Institutional Investors by Lucian Bebchuk, Alma Cohen, and Scott Hirst (discussed on the Forum here); and Index Fund and the Future of Corporate Governance: Theory, Evidence, and Policy by Lucian Bebchuk and Scott Hirst (discussed on the Forum here).

The European Corporate Governance Institute (ECGI) has announced that its 2019 prize for best working paper in law will be awarded to a paper by Lucian Bebchuk and Scott Hirst, Index Funds and the Future of Corporate Governance: Theory, Evidence, and Policy. The ECGI’s Cleary Gottlieb Steen Hamilton Prize is awarded for the best paper in the ECGI Law Working Paper Series, and carries with it a cash award of EUR 5,000.

The Bebchuk & Hirst paper earlier won the 2018 IRRC Institute prize, which carried with it a cash award of $10,000. The IRRC Institute’s announcement of the award is available here (and discussed on the Forum here). The Bebchuk & Hirst paper will be published in the December 2019 issue of the Columbia Law Review.

According to the ECGI’s announcement of the prize, “[t]he jury’s selection [of the Bebchuk & Hirst article] for the prize reflects the importance of this paper’s contribution to one of the key debates in today’s corporate governance.”

Professor Marco Becht, ECGI Executive Director indicated in a statement that the paper, along with another paper that was awarded the prize for the best paper in finance, “exemplify the importance of the research conducted by the ECGI research members around the world and the applicability of that research to the real world.”

According to the ECGI’s announcement, the Bebchuk & Hirst paper

“provides a comprehensive theoretical, empirical and policy analysis of passive investment funds, which have become a central player both in the US and elsewhere. Due to agency problems, the paper shows, the managers of passive funds have significant incentives to under-invest in stewardship, as well as to defer excessively to corporate managers, relative to what would best serve the funds’ beneficial investors. The paper also provides detailed evidence regarding the stewardship activities of passive funds, puts forward a number of policy proposals for improving these activities, and discusses the implications of its agency-costs analysis for key corporate governance debates.”

The Bebchuk & Hirst paper is part of a larger ongoing project on stewardship by index funds and other institutional investors. The paper builds on an analytical framework for understanding the monitoring and engagement decisions made by index funds put forward in a 2017 article, The Agency Problems of Institutional Investors, by Lucian Bebchuk, Alma Cohen, and Scott Hirst (discussed on the Forum here).

More information about the ECGI award is available here. The Bebchuk & Hirst paper for which the ECGI prize was awarded is available here, and is discussed on the Forum here.

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