Ian Appel, assistant professor of finance at the Carroll School of Management, is fighting for the little guy. His most recent paper, titled “Passive Investors, not Passive Owners,” challenges the traditional perception of “passive investors” in the financial marketplace and is awaiting publication in The Journal of Financial Economics.
Co-written with the University of Pennsylvania’s Wharton School of Business faculty members Todd Gormley and Donald Keim, the paper and its authors have been recognized with significant praise by the Investor Responsibility Research Center Institute (IRRCI).
The paper pushes back against the traditional notion that people who invest their retirement funds and other forms of monetary wealth in large, passive institutions like The Vanguard Group, which hold trillions of dollars in assets acquired through investors’ money and then invest in other firms, hold little influence when it comes to the corporate governance of the firms that this money finds its way to.
“The paper is looking at these passive investors,” Appel said. “There’s a perception among many people that these investors don’t really matter in terms of how companies are run, and so what we’re showing in this paper is that they actually play an important role.”
Appel explains that individuals who invest their wealth in massive passive institutions like Vanguard actually hold more influence than traditionally thought, and that this is a part of the reason why this paper has gotten such liberal coverage and positive attention.
“A big part of the jobs of me and my colleagues is doing research,” Appel said. “We want to do really good research, and I think it’s good for the school and so I think, not just limited to this paper, that discoveries and research like this are very important to the University as a whole.”
Appel’s work has been nationally recognized by professors at Harvard Law School, Bloomberg, and the Wall Street Journal, among others, and has been presented at many of the best business schools in the nation.
There are also broad implications that this new method of thinking could have around the world.
“There is a growing trend towards lots and lots of people investing their money with institutions like Vanguard, and we question what effect this has on the companies that Vanguard invests in,” Appel said. “And there’s this thinking that this could be good for companies or this could be bad for companies.”
These passive investors were traditionally believed to hold a lot less influence than those who could buy and sell bigger portions of stock in a firm itself, coined “active investors.”
Appel explained that institutions’ control of assets worth almost as much as the GDP of the world’s wealthiest nations has a significant impact that must be addressed.
“We’re showing that, at the end of the day, there is a significant effect on the corporate governance of how companies are run because institutions like Vanguard are playing an increasingly bigger role,” he said.
Featured Image by Julia Hopkins / Heights Editor