Public Pension Fund Activism and Firm Value: An Empirical Analysis

Public pension fund ownership is associated with lower firm value, as measured by Tobin’s Q and industry-adjusted Q. Ownership by public pension funds engaged in social-issue shareholder-proposal activism is negatively related to firm value. Ownership by New York State Common Retirement System is negatively related to firm value during the period in which the fund was actively engaged in sponsoring shareholder proposals related to social issues. There is no significant relationship between public pension fund ownership and firm value for funds engaging in shareholder-proposal activism focused on corporate governance rules. Public pension funds’ shareholder activism influences companies but such influence is not generally associated with positive valuation effects; when influence is associated with social-issue activism, valuation effects tend to be negative. In contrast, private pension fund ownership—driven by the Teachers Insurance and Annuity Association–College Retirement Equities Fund, which engages in strategies designed to influence corporate behavior in its portfolio—is associated with higher firm value. Performance-based compensation for administrators of private pension funds generally results in a convergence of their interests with other shareholders’, whereas public pension fund administrators’ actions may be motivated more by political or social influences than by firm performance, leading to a conflict of interest.

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