Engaged ETFs and firm performance

Exchange Traded Funds (ETFs) have often tracked indices and charged low fees so their incentives to improve firm performance are questionable although little empirical work has investigated this issue. Theoretically, however, we expect firms to perform better when held by more engaged ETFs. We devel...

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Bibliographic Details
Published in:European financial management : the journal of the European Financial Management Association 2024-06, Vol.30 (3), p.1708-1756
Main Authors: El Kalak, Izidin, Hudson, Robert, Tosun, Onur K.
Format: Article
Language:English
Subjects:
corporate governance
Exchange Traded Funds (ETFs)
firm performance
monitoring
Organizational performance
Ownership
portfolio concentration
Portfolios
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Summary:Exchange Traded Funds (ETFs) have often tracked indices and charged low fees so their incentives to improve firm performance are questionable although little empirical work has investigated this issue. Theoretically, however, we expect firms to perform better when held by more engaged ETFs. We develop a new measure of engagement using a weighted‐average concentration measure which captures the combined effect of the concentration of the portfolios of the ETFs investing in a firm and the ownership of the firm by those ETFs. Using ETFs' investment in US‐listed firms for the period 2000–2019, we confirm our expectations that more engaged ETFs improve firm performance.
ISSN:1354-7798
1468-036X
DOI:10.1111/eufm.12459