I. J. Alexander Dyck

The Corporate Governance Role of the Media: Evidence from Russia

We study the effect of media coverage on corporate governance outcomes by focusing on Russia in the period 1999-2002. Russia provides a setting with multiple examples of corporate governance abuses, where traditional corporate governance mechanisms are ineffective, and where we can identify an exogenous source of news coverage arising from the presence of an investment fund, the Hermitage fund, that tried to shame companies by exposing their abuses in the international media. We find that the probability that a corporate governance abuse is reversed is affected by the coverage of the news in the Anglo-American press. The result is not due to the endogeneity of news reporting since this result holds even when we instrument media coverage with the presence of the Hermitage fund among its shareholders and the “natural” newsworthiness of the company involved. We confirm this evidence with a case study.

Management Control and Privatization in the United Kingdom

We examine the links between ownership and internal control for a sample of 112 state-owned, privatized, and publicly traded firms in the United Kingdom from 1970 to 1994. Privatized firms with at least four years in the private sector, like established publicly traded firms, exhibit a significant negative relationship between improved performance and the probability of resignation. Simulations using model estimates show a one-standard-deviation decrease in performance raises the probability of resignation by 90% in publicly traded firms and by 180% in established privatized firms. State-owned firms and privatized firms in their first four years show no relationship between the probability of resignation and changes in financial performance.

Is Bigger Better? Size and Performance in Pension Plan Management

We document substantial positive scale economies in asset management using a defined benefit pension plan database. The largest plans outperform smaller ones by 43-50 basis points per year. Between a third and one half of these gains arise from cost savings related to internal management, where costs are at least three times lower than under external management. Most of the superior returns come from large plans’ increased allocation to alternative investments and realizing greater returns in this asset class. In their private equity and real estate investments large plans have both lower costs and higher gross returns, yielding up to 6% per year improvement in returns. The ability to take advantages of scale depends on plan governance with better governed plans having higher scale economies.

Taxes and Corporate Policies: Evidence from a Quasi Natural Experiment

We exploit a surprise announcement that imposed corporate taxes on a group of Canadian publicly-traded firms to provide new evidence on the interaction between tax incentives and corporate policies. The announcement resulted in a dramatic decrease in value though prospective tax shields offset part of the losses, adding 4.6% to firm value. We also show that firms adjust corporate policies to changing tax incentives. After the announcement, they increased leverage to gain interest tax shields and reversed changes in payout, cash holdings and investment that had been made to capitalize on the tax benefits. Overall, the evidence supports the view that taxes are important for corporate decision making.

Sovereign Wealth Fund Portfolios

Using a novel, hand-collected dataset of Sovereign Wealth Fund (SWF) investments in public equities, private firms, and real estate, we establish what SWF portfolios look like. SWF allocations are balanced across risky asset classes, very home-region biased, and very biased toward certain industries, in particular, toward finance (owning 4.8% of world equity) and transportation, energy and telecommunication. SWFs invest actively (with control rights) in both public and private sectors, but mainly in these industries in their home regions. We use these allocations to understand better the objectives that drive SWF investment decisions. We find evidence for financial portfolio investor benchmarking and for hedging of income covariance risk. We introduce and test an industrial planning hypothesis as an alternative objective and find this has considerable explanatory power. We find that both measures to capture financial portfolio and industrial planning objectives together explain 14.4% of SWF portfolio variation. Of this, industrial planning accounts for 45%. There is significant variation in the power of industrial planning objectives across SWFs revealing important heterogeneity in this investor class. Industrial planning helps to explain active ownership, predicting higher ownership stakes.

Does Active Management Pay? New International Evidence

For sophisticated institutional investors, active management outperforms passive management by more than 180 bps per year in emerging markets and by about 50 bps in EAFE markets over the 1993 to 2008 period. In U.S. markets, active management underperforms. Consistent with these patterns in returns, institutions use active management more frequently in non-U.S. markets, particularly emerging markets. Finally, we provide some evidence that one contributor to the active outperformance is institutional constraints on flows to non-U.S. markets. Overall, our results suggest that the value of active management depends on the efficiency of the underlying market and the sophistication of the investor.

Organization Structure, Contract Design and Government Ownership: A Clinical Analysis of German Privatization

This paper examines the role that organization structure and contract design played in resolving economic and political problems that arose during Germanys privatization process. We find that German officials structured organizations and contracts in a way that made credible the governments commitment to rapid privatization. This credibility served to protect the process from political and social opposition. In addition, it enabled Germany to attract talented private sector managers to its privatization effort. This began with the establishment of an independent privatization agency, the Treuhand. It culminated with the creation of another set of independent organizations called Management KGs, to which the Treuhand outsourced part of its restructuring, management and privatization work.

Investor Scale and Performance in Private Equity Investments

We document that defined benefit pension plans with significant holdings in private equity (PE) earn substantially greater returns than plans with small holdings, in both the 1990s and the 2000s. A one standard deviation increase in PE holdings is associated with 4% greater returns per year. Up to one-third of this outperformance comes from lower costs that we link to economizing on costly intermediation by avoiding fund-of-funds and investing directly. The bulk of the outperformance comes from superior gross returns only partially explained by access and experience. We conjecture that larger PE investors have superior due diligence and ability to bridge information asymmetries in PE.

Collective Action and Governance Activism

Can institutional investors generate sufficient power through collective action to drive improvements in governance? We use proprietary data on the private communications of a formal coalition of Canadian institutional investors and find that its private engagements influenced firms’ adoption of majority voting and say-on-pay advisory votes, improved compensation structure and disclosure, and influenced CEO incentive intensity. Spillovers to non-engaged firms occur through board interlocks and to firms in which the CCGG is expected to be more powerful in a voting contest. This form of activism is both a substitute and complement to other interventions to address governance concerns.  Doidge and Dyck are at the Rotman School of Management, University of Toronto. Mahmudi is at the Price College of Business, University of Oklahoma. Virani is at the Eller College of Management, University of Arizona. We thank the Canadian Coalition for Good Governance for making their information available to us and Matt Fullbrook and the Shareholder Association for Research and Education (SHARE.ca) for providing data. Anita Anand, David Beatty, Bernard Black, Susan Christoffersen, Peter Cziraki, Craig Dunbar, Stephen Erlichman, Rüdiger Fahlenbrach, Chitru Fernando, Bing Han, Ed Iacobucci, Wayne Kozun, Randall Morck, Michael Robinson, and Richard Sias provided many useful comments as did seminar participants at the Chinese University of Hong Kong, City University of Hong Kong, Hong Kong Polytechnic University, Imperial College London, Rotman-ICPM Discussion Forum, Simon Fraser University, University of Alberta, University of Arizona, University of British Columbia, University of Calgary, University of Hong Kong, UC San Diego, University of Oklahoma, University of South Florida, and Warwick University, and conference participants at the 2015 NBER Corporate Finance meeting and 2015 EFA meeting. Tetyana Balyuk, Mary Lou, Ashley Newton, Livia Nguyen, and Eric Wilson provided excellent research assistance. We are grateful to the Rotman International Centre for Pension Management for financial support.

The Government As Venture Capitalist: Organisational Structure and Contract Design in Germany's Privatisation Process

This paper examines the role that organisation structure and contract design played in resolving economic and political problems that arose during Germanys privatisation process. We find that German officials structured organizations and contracts in a way that made credible the governments commitment to rapid privatisation. This credibility served to protect the process from political and social opposition. In addition, it enabled Germany to attract talented private sector managers to its privatisation effort. This began with the establishment of an independent privatisation agency, the Treuhand. It culminated with the creation of another set of independent organisations called Management KGs, to which the Treuhand outsourced part of its restructuring, management and privatisation work. The Treuhand provided funding to this effort, thus serving as a kind of venture capitalist.