The Systemic Governance Influence of Expectation Documents: Evidence from a Universal Owner

We examine expectation documents’ effectiveness as an activism tool. We use as a natural experiment, the unforeseen release by the Norwegian sovereign wealth fund of a corporate governance expectation document. We introduce a novel, three-way analytical decomposition of the firms, the fund, and their joint response to this document. Firms’ governance practices adapt to the fund’s new portfolio-wide governance preferences, with heterogeneous responses across ownership and firm characteristics. The fund’s investment polices also change, even at the expense of financial returns. Overall, our research demonstrates the potential effectiveness of expectation documents as an emerging low-cost activism tool for universal investors.

Keywords: Corporate Governance; Institutional Ownership; Expectation Documents

JEL Classification: F30, G32, G34

Suggested Citation: Suggested Citation

Aguilera, Ruth V. and Bermejo, Vicente J. and Capapé Aguilar, Javier and Cuñat, Vicente and Cuñat, Vicente, The Systemic Governance Influence of Expectation Documents: Evidence from a Universal Owner (July 1, 2021). European Corporate Governance Institute - Finance Working Paper No. 625/2019, Northeastern U. D’Amore-McKim School of Business Research Paper No. 3411566, ESADE Business School Research Paper, Available at SSRN: https://ssrn.com/abstract=3411566 or http://dx.doi.org/10.2139/ssrn.3411566