Exit or Voice? Divestment, Activism, and Corporate Social Responsibility [SSRN]

The Brattle Group PhD Award for Outstanding Research - WFA 2023 

Finalist of the BlackRock Applied Research Award - 2023

Young Academic Award - WAIFC 2022

Finalist of the Best Young Researcher Award - Applied Economics Meeting 2022

Featured in ShareAction

Presented at: WFA, SFS Cavalcade APAC, Paris December Finance Meeting, EFA Doctoral Tutorial, HEC Paris Finance PhD Workshop

This paper investigates the effectiveness of shareholder strategies–divestment threats (exit) and active engagement (voice)–in driving socially responsible corporate behavior and the conditions under which they succeed. Using a novel classification of U.S. mutual funds based on their portfolio holdings and votes, I find that voice is generally effective, particularly when board directors are up for reelection. The exit strategy, which leverages the threat of stock price depreciation, is effective only in firms with high CEO wealth-performance sensitivity. These results suggest that the career concerns of management can drive pro-social change when shareholders demand it. 

The Shared Costs of Pursuing Shareholder Values [PDF] with Michele Fioretti and Simon C. Smith

Chicago Booth Stigler Center for the Study of the Economy and the State Working Paper #362

Presented at: EFA, Erasmus Corporate Governance Conference

We uncover latent conflicts among shareholders, showing how private reputational rents for a few impose losses on many. Exploiting predetermined Annual General Meeting dates relative to COVID-19 and the Russian invasion of Ukraine as exogenous media spotlights, we find that prominent individual shareholders backed early donations or rapid exits from Russia to enhance their reputations. Less visible financial investors opposed such actions and pursued their reputation through their own giving instead. Our design accounts for governance, managerial access, and alternative shareholder motives. Firms most exposed to rent-seeking reduced investment, productivity, and profitability by 1–3%, with adverse effects lasting two years.

NGO Activism: Exposure vs Influence [PDF] with Michele Fioretti and Simon C. Smith 

We analyze the timing of NGO campaigns to shed light on NGOs’ objectives and how their strategies evolve over time. Using data from 2,500 campaigns, we find that NGOs are six times more likely to launch campaigns on their target’s Annual General Meeting (AGM) date. Although this strategy increases media exposure and stakeholder scrutiny, resulting in consumer boycotts and related shareholder proposals at the following AGM of the targeted firm, it has no impact on current AGM votes. As NGOs build reputational capital, they adjust their timing to influence AGM votes, revealing the trade-offs they face to drive corporate change.

Promise at Dawn: Market Fragmentation and Liquidity when Dark Pools are Suspended [SSRN]

Should we regulate dark trading? This paper studies the effect of suspending dark pools on market fragmentation and liquidity. Using the European regulation MiFID II as a quasi-natural experiment, I show that dark volumes are redirected to lit venues and periodic auctions, in line with a “pecking order” of trading venues. Liquidity improves significantly on stock exchanges, and the effect is concentrated among stocks with a high level of noise trading. Those results confirm the theoretical prediction that dark trading is detrimental to liquidity by increasing adverse selection risk on stock exchanges.

Don't Bite the Hand that Feeds You: Strategic Shareholder Voting at Creditor Banks [SSRN]

Using a novel dataset linking mutual funds to their credit lines with banks, I show that mutual funds are significantly more likely to vote in favor of management at the Annual General Meetings (AGMs) of their creditor banks. Specifically, a fund is 5 percentage points more likely to support management at a creditor bank’s AGM compared to other portfolio firms. This effect is more pronounced for larger credit exposures and on contentious items such as shareholder proposals, close votes, and proposals opposed by proxy advisor ISS. I interpret this pattern as evidence of strategic voting behavior aimed at preserving access to future credit. The tendency to support creditor banks is stronger when funds underperform, suggesting that voting in line with management serves as a relational hedge. Consistent with this, I find that funds with a track record of supporting their creditor banks are less likely to engage in fire sales during periods of market stress, including the onset of the COVID-19 crisis. Finally, I show that such strategic alignment may override funds’ stated objectives: ESG-labeled funds are 30 percentage points (50%) less likely to support ESG-related proposals at creditor banks than at non-creditor banks. Together, these findings highlight how financial dependencies can distort mutual funds’ governance roles.