Public Pension Fund Activism And Firm Value: An Empirical Analysis by Tracie Woidtke, Manhattan Institute

Executive Summary

This paper examines the relationship between public pension funds engaged in shareholder activism-specifically, that involving corporate-governance rules or social/policy concerns—and firm value during 2001–13: consistent with the author’s previous research, the paper finds that public pension fund ownership is associated with lower firm value, as measured by Tobin’s Q and industry-adjusted Q.

The paper further explores this relationship across two time subsets, 2001–07 and 2008–13; it examines two data samples, the Fortune 250 and S&P 500; and looks separately at the major state pension funds engaged in such activism—principally the California Public Employees Retirement System (CalPERS), California State Teachers Retirement System (CalSTRS), New York State Common Retirement System (NYSCR), and Florida State Board of Administration (FSBA). Key findings include:

  1. Ownership by public pension funds engaged in social-issue shareholder-proposal activism is negatively related to firm value. This relationship is significant for the 2008–13 period—when the two large funds focused on social-issue activism, CalSTRS and the NYSCR, were engaged in shareholder-proposal activism—in both the Fortune 250 and S&P 500 samples.
  2. Ownership by NYSCR is negatively related to firm value during the period in which the fund was actively engaged in sponsoring shareholder proposals related to social issues. This relationship is significant for 2008–13, at the 1 percent level, for both the Fortune 250 and S&P 500 firm samples, as well as for the overall 2001–13 period for the broader S&P 500 sample. There is no statistically significant relationship between NYSCR ownership and firm value in the earlier 2001–07 period, when the fund was not as active in sponsoring shareholder proposals. Overall, S&P 500 firms targeted by NYSCR with social-issue shareholder proposals subsequently had a 21 percent lower Tobin’s Q and a 91 percent lower industry-adjusted Q than all other firm-years in the sample.
  3. 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. For the full 2001–13 period, 2001–07 period, and 2008–13 period, there is no statistically significant relationship between firm value and ownership by public pension funds engaged in corporate-governance-related shareholder-proposal activism, in either the Fortune 250 or S&P 500 sample. Certain funds engaged in such activism—notably the FSBA and the Ohio pension funds—show significant positive relationships between their ownership and firm value for certain periods or samples.

These findings suggest that public pension funds’ shareholder activism influences companies but that 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 (TIAA–CREF), which engages in strategies designed to influence corporate behavior in its portfolio—is associated with higher firm value, at least in some sample study periods.

These findings are also consistent with the hypothesis that 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. Policymakers overseeing state and municipal pension plans need to consider carefully the shareholder-activism strategies employed by their funds.


Many credit the increase in institutional shareholder activism during the 1990s, at least in part, to intense lobbying efforts by institutional investors to allow greater shareholder involvement in the proxy voting process (e.g., Eisenhofer and Bany 2013). For example, the U.S. Securities and Exchange Commission (SEC) initiated a comprehensive reexamination of the federal proxy regulations, which culminated in the 1992 proxy-rule amendments, after receiving a series of letters from some of the most activist institutional investors, spearheaded by the California Public Employees Retirement System (CalPERS) (Fisch 1994).

The aim of the expansive reforms was to increase the ability of investors to communicate with one another on how to respond to a proxy-issue proposal. Among others, the 1992 proxy reforms enabled activist investors to broadcast their voting positions on a website (CalPERS began to broadcast its voting positions on a new website), potentially enhancing their influence over shareholder voting and company management.

Several pension funds continue to be among the most active institutional investors by broadcasting their stance on proxy voting for certain issues, publishing focus lists, sponsoring proxy proposals, and supporting reforms that increase shareholders’ power to influence company management (e.g., proxy access and say on pay). Even though public pension funds do not tend to face the same potential conflicts of interests stemming from either short-term investment horizons or business ties with their portfolio companies as other types of institutions do, they are frequently criticized for being influenced more by social and political issues than by shareholder wealth.

Pension Fund Activism

Pension Fund Activism

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