Economics Of Discrimination

THIS paper is concerned with those actions of business firms which have harmful effects on others. The standard example is that of a factory the smoke from which has harmful effects on those occupying neighbouring properties. The economic analysis of such a situation has usually proceeded in terms of a divergence between the private and social product of the far' ory, in which economists have largely followed the treatment of Pigou in The Economics of Welfare. The conclusions to which this kind of analyris seems to have led most economists is that it would be desirable to make the owner of the factory liable for the damage caused to those injured by the smoke, or alternatively, to place a tax on the factory owner varying with the amount of smoke produced and equivalent in money terms to the damage it would cause, or finally, to exclude the factory from residential districts (and presumably from other

闡釋《社會成本問題》[The Problem of Social Cost]

This paper explores both the role of institutional investors in firms’ corporate social responsibility choices and the impact of social norms on these investors. Using a decade of firm-level environmental and social (E&S) performance data from 41 countries, we find that institutional ownership is positively associated with firm-level E&S performance, with multiple tests suggesting a causal relationship. The impact of institutional investors on firms’ E&S commitments is greatest for foreign investors based in countries with strong social norms regarding E&S, which are predominantly European. Tests that segment by investor type show that these social norm effects hold even for institutional investor types that are subject to market discipline, such as investment advisors. Overall, our results indicate that institutional investors transplant their social norms into the firms they hold around the world.

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Do Institutional Investors Drive Corporate Social Responsibility? International Evidence

According to our survey about climate risk perceptions, institutional investors believe climate risks have financial implications for their portfolio firms and that these risks, particularly regulatory risks, already have begun to materialize. Many of the investors, especially the long-term, larger, and ESG-oriented ones, consider risk management and engagement, rather than divestment, to be the better approach for addressing climate risks. Although surveyed investors believe that some equity valuations do not fully reflect climate risks, their perceived overvaluations are not large.

The Importance of Climate Risks for Institutional Investors

Passive institutional investors are an increasingly important component of U.S. stock ownership. To examine whether and by which mechanisms passive investors influence firms’ governance, we exploit variation in ownership by passive mutual funds associated with stock assignments to the Russell 1000 and 2000 indexes. Our findings suggest that passive mutual funds influence firms’ governance choices, resulting in more independent directors, removal of takeover defenses, and more equal voting rights. Passive investors appear to exert influence through their large voting blocs, and consistent with the observed governance differences increasing firm value, passive ownership is associated with improvements in firms’ longer-term performance.

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Passive Investors, Not Passive Owners

https://www.stern.nyu.edu/sites/default/files/assets/documents/1%20Gormley%20Passive%20Investors%20Not%20Passive%20Owners.pdf

Passive Investors, Not Passive Owners *

We analyze whether the growing importance of passive investors has influenced the campaigns, tactics, and successes of activists. We find activists are more likely to pursue changes to corporate control or influence (e.g., via board representation) and to forego more incremental changes to corporate policies when a larger share of the target company’s stock is held by passively managed mutual funds. Furthermore, higher passive ownership is associated with increased use of proxy fights and a higher likelihood the activist obtains board representation or the sale of the targeted company. Overall, our findings suggest that the increasingly large ownership stakes of passive institutional investors mitigate free-rider problems associated with certain forms of intervention and ultimately increase the likelihood of success by activists.

Standing on the Shoulders of Giants: The Effect of Passive Investors on Activism

This paper examines the role of shareholder litigation rights in corporate governance. For empirical identification, I use the staggered adoption of universal demand (UD) laws at the state-level. UD imposes a significant obstacle to lawsuits alleging breach of fiduciary duty by directors or officers. I find the laws are associated with decreased firm performance and elevated use of governance provisions that are commonly opposed by shareholders (e.g., classified boards). I also document changes to corporate policies (e.g., CEO compensation) that are potentially sensitive to agency conflicts. The results are driven by firms without an existing blockholder, suggesting litigation rights are particularly important when alternative governance mechanisms are weak. Overall, the findings highlight the importance of the deterrence function of litigation and cast doubt on the notion that lawsuits primarily benefit attorneys rather than shareholders.

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Governance by Litigation

This paper studies the long-term effects of redlining policies that restricted access to credit in urban communities. For empirical identification, we use a regression discontinuity design that exploits boundaries from maps created by the Home Owners Loan Corporation (HOLC) in 1940. We find that "redlined" neighborhoods have 4.8% lower home prices in 1990 relative to adjacent areas. This finding is robust to the exclusion of boundaries that coincide with the physical features of cities (e.g., rivers, landmarks). Moreover, we show that housing characteristics varied smoothly at the boundaries when the maps were created. Evidence suggests lower property values may be driven by negative externalities associated with fewer owner-occupied homes and more vacant structures. Overall, our results indicate the effects of discriminatory credit rationing can persist decades after such practices are formally discontinued.

Ian Appel

Papers

Passive Investors, Not Passive Owners

Passive Investors, Not Passive Owners *

Standing on the Shoulders of Giants: The Effect of Passive Investors on Activism

Governance by Litigation

Pockets of Poverty: The Long-Term Effects of Redlining