Anti-Competitive Effects of Common Ownership Jos e Azar Martin - PowerPoint PPT Presentation

Verbatim quotes Vanguard’s CEO & Chairman F. William McNabb ◮ Passive investor, not passive owner ◮ Some have mistakenly assumed that our predominantly passive management style suggests a passive attitude with respect to corporate governance. Nothing could be further from the truth. ◮ By involvement in hundreds of direct discussions every year ... we can accomplish much more than through voting ... we put issues on the table that aren’t on the proxy ballot. 5 / 1

Passive investment, active ownership Most large mutual fund companies ◮ Have central corporate governance & proxy voting offices that “engage” with portfolio firms “behind the scenes” ◮ Pool votes across funds in family (few within-family fights) 6 / 1

Passive investment, active ownership Most large mutual fund companies ◮ Have central corporate governance & proxy voting offices that “engage” with portfolio firms “behind the scenes” ◮ Pool votes across funds in family (few within-family fights) All of the large asset managers are active in corporate governance – even if they have passive investment strategies 6 / 1

Facts on corporate ownership: summary Corporate ownership by institutional investors ◮ Is not small ◮ Is not undiversified ◮ Is not passive 6 / 1

Facts on corporate ownership: summary Corporate ownership by institutional investors ◮ Is not small ◮ Is not undiversified ◮ Is not passive We therefore find it not entirely absurd to ask... 6 / 1

Questions Do current levels of common ownership significantly increase 1 market concentration? ◮ How to quantify ? Does higher common ownership concentration cause higher 2 product prices? ◮ How to identify ? 7 / 1

What we do t=0: ¡ BOS ¡ Airline ¡1 ¡ Airline ¡2 ¡ JFK ¡ Airline ¡1 ¡ Airline ¡3 ¡ Airline ¡2 ¡ Airline ¡3 ¡ DCA ¡ 8 / 1

What we do t=0: ¡ BOS ¡ Airline ¡1 ¡ Airline ¡2 ¡ ¡ S O B -­‑ I K H F H J HHI DCA-­‑BOS ¡ JFK ¡ Market ¡shares ¡ Airline ¡1 ¡ determine ¡HHI i ¡ Airline ¡3 ¡ HHI JFK-­‑DCA ¡ Airline ¡2 ¡ Airline ¡3 ¡ DCA ¡ 8 / 1

What we do t=0 ¡ BOS ¡ owns owns Airline ¡1 ¡ Airline 1 Airline 2 Airline ¡2 ¡ ¡ S O B -­‑ I K H F H J owns Airline 3 HHI DCA-­‑BOS ¡ JFK ¡ Airline ¡1 ¡ Airline ¡3 ¡ HHI JFK-­‑DCA ¡ Airline ¡2 ¡ Airline ¡3 ¡ DCA ¡ 8 / 1

What we do t=0 ¡ BOS ¡ owns owns Airline ¡1 ¡ Airline 1 Airline 2 Airline ¡2 ¡ I JFK-­‑BOS ¡ H H owns Airline 3 HHI DCA-­‑BOS ¡ JFK ¡ Airline ¡1 ¡ Airline ¡3 ¡ t=1 ¡ HHI JFK-­‑DCA ¡ Airline ¡2 ¡ Airline ¡3 ¡ DCA ¡ 8 / 1

What we do t=0 ¡ BOS ¡ owns owns Airline ¡1 ¡ Airline 1 Airline 2 Airline ¡2 ¡ I JFK-­‑BOS ¡ H H owns Airline 3 Price ¡increase ¡ HHI DCA-­‑BOS ¡ JFK ¡ Airline ¡1 ¡ Airline ¡3 ¡ t=1 ¡ HHI JFK-­‑DCA ¡ Airline ¡2 ¡ Airline ¡3 ¡ DCA ¡ 8 / 1

What we do t=0 ¡ BOS ¡ owns owns Airline ¡1 ¡ Airline 1 Airline 2 Airline ¡2 ¡ owns Airline 3 Price ¡increase ¡ JFK ¡ Airline ¡1 ¡ … ¡ Airline ¡3 ¡ t=1 ¡ compared ¡to ¡these ¡ routes ¡ Airline ¡2 ¡ Airline ¡3 ¡ DCA ¡ 8 / 1

What we do t=0 ¡ BOS ¡ owns owns Airline ¡1 ¡ Airline 1 Airline 2 Airline ¡2 ¡ owns Airline 3 Price ¡increase ¡ JFK ¡ Airline ¡1 ¡ … ¡ Airline ¡3 ¡ t=1 ¡ compared ¡to ¡these ¡ routes ¡ Airline ¡2 ¡ Airline ¡3 ¡ DCA ¡ 8 / 1

What we find Measure market ownership-adjusted concentration 1 ◮ Anti-competitive incentives due to common ownership in the average US airline route: 2,200 HHI points ◮ 10 times larger than what DoJ/FTC horizontal merger guidelines presume “likely to enhance market power” Identify price effect 2 ◮ Prices 3-11% higher, compared to separate ownership ◮ Single merger of asset managers causes 0.6% price increase ⋆ Compares to 1-4% profit margins (IATA) 9 / 1

Theory 9 / 1

Competition under common ownership (Salop & O’Brien, 2000) Assumption : firm j maximizes a weighted average of its owners’ economic interests 10 / 1

Competition under common ownership (Salop & O’Brien, 2000) Assumption : firm j maximizes a weighted average of its owners’ economic interests: their portfolio profits 10 / 1

Competition under common ownership (Salop & O’Brien, 2000) Assumption : firm j maximizes a weighted average of its owners’ economic interests: their portfolio profits ◮ Weights: control rights γ ij , cash flow rights β ik M N ∑ ∑ Π j = max γ ij β ik π k x j i = 1 k = 1 10 / 1

Competition under common ownership (Salop & O’Brien, 2000) Assumption : firm j maximizes a weighted average of its owners’ economic interests: their portfolio profits ◮ Weights: control rights γ ij , cash flow rights β ik M N ∑ i γ ij β ik ∝ π j + ∑ ∑ ∑ Π j = max γ ij β ik π k π k ∑ i γ ij β ij x j i = 1 k = 1 k � = j 10 / 1

Competition under common ownership (Salop & O’Brien, 2000) Assumption : firm j maximizes a weighted average of its owners’ economic interests: their portfolio profits ◮ Weights: control rights γ ij , cash flow rights β ik M N ∑ i γ ij β ik ∝ π j + ∑ ∑ ∑ Π j = max γ ij β ik π k π k ∑ i γ ij β ij x j i = 1 k = 1 k � = j Result : Cournot ⇒ markup ∝ MHHI 10 / 1

Competition under common ownership (Salop & O’Brien, 2000) Assumption : firm j maximizes a weighted average of its owners’ economic interests: their portfolio profits ◮ Weights: control rights γ ij , cash flow rights β ik M N ∑ i γ ij β ik ∝ π j + ∑ ∑ ∑ Π j = max γ ij β ik π k π k ∑ i γ ij β ij x j i = 1 k = 1 k � = j Result : Cournot ⇒ markup ∝ MHHI = HHI + MHHI delta 10 / 1

Competition under common ownership (Salop & O’Brien, 2000) Assumption : firm j maximizes a weighted average of its owners’ economic interests: their portfolio profits ◮ Weights: control rights γ ij , cash flow rights β ik M N ∑ i γ ij β ik ∝ π j + ∑ ∑ ∑ Π j = max γ ij β ik π k π k ∑ i γ ij β ij x j i = 1 k = 1 k � = j Result : Cournot ⇒ markup ∝ MHHI = HHI + MHHI delta P − C ′ j ( x j ) ∑ i γ ij β ik η ∑ = ∑ j + ∑ s 2 j ∑ s j s j s k P ∑ i γ ij β ij j j k � = j 10 / 1

Competition under common ownership (Salop & O’Brien, 2000) Assumption : firm j maximizes a weighted average of its owners’ economic interests: their portfolio profits ◮ Weights: control rights γ ij , cash flow rights β ik M N ∑ i γ ij β ik ∝ π j + ∑ ∑ ∑ Π j = max γ ij β ik π k π k ∑ i γ ij β ij x j i = 1 k = 1 k � = j Result : Cournot ⇒ markup ∝ MHHI = HHI + MHHI delta P − C ′ j ( x j ) ∑ i γ ij β ik η ∑ = ∑ j + ∑ s 2 j ∑ s j s j s k P ∑ i γ ij β ij j j k � = j Unilateral effects ⇒ no coordination or communication 10 / 1

Symmetric example: 2 firms, 50/50 market share Separate ownership: fund A owns firm 1, fund B owns firm 2 ◮ HHI = 5, 000 ; MHHI = 5, 000 ; MHHI delta = 0 11 / 1

Symmetric example: 2 firms, 50/50 market share Separate ownership: fund A owns firm 1, fund B owns firm 2 ◮ HHI = 5, 000 ; MHHI = 5, 000 ; MHHI delta = 0 Funds diversify (or A buys B ) ◮ HHI = 5, 000 ; MHHI = 10, 000 ; MHHI delta = 5, 000 11 / 1

Distribution of MHHI delta across routes 2001Q1 2013Q1 .001 Density .0005 0 0 2000 4000 6000 MHHI delta Networks 12 / 1

Average MHHI and HHI over time 8000 7000 6000 BlackRock acquires BGI 5000 4000 2001q1 2004q1 2007q1 2010q1 2013q1 Average HHI Average MHHI 13 / 1

Average MHHI and HHI over time 8000 7000 6000 BlackRock acquires BGI 5000 4000 2001q1 2004q1 2007q1 2010q1 2013q1 Average HHI Average MHHI Horizontal merger guidelines: +200 “presumed likely to enhance market power” & shifts burden of proof 13 / 1

Average MHHI and HHI over time 8000 7000 6000 BlackRock acquires BGI 5000 4000 2001q1 2004q1 2007q1 2010q1 2013q1 Average HHI Average MHHI Horizontal merger guidelines: +200 “presumed likely to enhance market power” & shifts burden of proof 2,200 additional HHI points due to common ownership: worse than going from 4 → 2 competitors 13 / 1

Average MHHI and HHI over time 8000 7000 6000 BlackRock acquires BGI 5000 4000 2001q1 2004q1 2007q1 2010q1 2013q1 Average HHI Average MHHI Horizontal merger guidelines: +200 “presumed likely to enhance market power” & shifts burden of proof 2,200 additional HHI points due to common ownership: worse than going from 4 → 2 competitors, w/o DoJ/FTC involvement 13 / 1

Price effect of common ownership 13 / 1

Empirical hypotheses H0: Common ownership concentration (MHHI delta) does not affect prices 14 / 1

Empirical hypotheses H0: Common ownership concentration (MHHI delta) does not affect prices ◮ Corporate governance frictions ◮ Informational frictions (too complex) ◮ ... 14 / 1

Empirical hypotheses H0: Common ownership concentration (MHHI delta) does not affect prices ◮ Corporate governance frictions ◮ Informational frictions (too complex) ◮ ... H1: MHHI delta has a positive effect on ticket prices ◮ Economic incentives matter for economic outcomes ◮ Firms act (to some extent) in their owners’ economic interest 14 / 1

Empirical strategy: fixed-effects panel Route i , carrier j , quarter t � = β · MHHI delta it � log p ijt � + ε ijt � + ν jt + γ · HHI it + θ · X ijt + α t + ν ij 15 / 1

Empirical strategy: fixed-effects panel Route i , carrier j , quarter t � = β · MHHI delta it � log p ijt � + ε ijt � + ν jt + γ · HHI it + θ · X ijt + α t + ν ij Results ◮ β > 0 : 5% higher prices compared to MHHI delta = 0 15 / 1

Empirical strategy: fixed-effects panel Route i , carrier j , quarter t � = β · MHHI delta it � log p ijt � + ε ijt � + ν jt + γ · HHI it + θ · X ijt + α t + ν ij Results ◮ β > 0 : 5% higher prices compared to MHHI delta = 0 ◮ β ≈ γ 15 / 1

Empirical strategy: fixed-effects panel Route i , carrier j , quarter t � = β · MHHI delta it � log p ijt � + ε ijt � + ν jt + γ · HHI it + θ · X ijt + α t + ν ij Results ◮ β > 0 : 5% higher prices compared to MHHI delta = 0 ◮ β ≈ γ ⋆ Magnitude driven by large MHHI delta, not by a high β 15 / 1

Empirical strategy: fixed-effects panel Route i , carrier j , quarter t � = β · MHHI delta it � log p ijt � + ε ijt � + ν jt + γ · HHI it + θ · X ijt + α t + ν ij Results ◮ β > 0 : 5% higher prices compared to MHHI delta = 0 ◮ β ≈ γ ⋆ Magnitude driven by large MHHI delta, not by a high β ◮ Quantity (# passengers) is lower ( β < 0 ) 15 / 1

Empirical strategy: fixed-effects panel Route i , carrier j , quarter t � = β · MHHI delta it � log p ijt � + ε ijt � + ν jt + γ · HHI it + θ · X ijt + α t + ν ij Results ◮ β > 0 : 5% higher prices compared to MHHI delta = 0 ◮ β ≈ γ ⋆ Magnitude driven by large MHHI delta, not by a high β ◮ Quantity (# passengers) is lower ( β < 0 ) ◮ Implied η = − 1.3 (IATA: -1.4) 15 / 1

Price effect of MHHI delta Dependent Variable: Log(Average Fare) Market-carrier level Market-level (1) (2) (3) (4) (5) (6) MHHI delta 0.201*** 0.128*** 0.129*** 0.299*** 0.165*** 0.212*** (0.0251) (0.0232) (0.0232) (0.0283) (0.0249) (0.0246) HHI 0.208*** 0.150*** 0.152*** 0.342*** 0.260*** 0.279*** (0.0209) (0.0182) (0.0182) (0.0262) (0.0206) (0.0216) Controls ( � ) � ( � ) � Year-Quarter FE � � � � � � Market-Carrier FE � � � Market FE � � � Observations 1,115,482 1,089,818 1,089,818 228,890 222,347 222,347 R-squared 0.095 0.144 0.146 0.160 0.263 0.279 Number of Market-Carrier Pairs 50,659 49,057 49,057 Number of Markets 7,391 7,081 7,081 16 / 1

Price effect of MHHI delta Dependent Variable: Log(Average Fare) Market-carrier level Market-level (1) (2) (3) (4) (5) (6) MHHI delta 0.201*** 0.128*** 0.129*** 0.299*** 0.165*** 0.212*** (0.0251) (0.0232) (0.0232) (0.0283) (0.0249) (0.0246) HHI 0.208*** 0.150*** 0.152*** 0.342*** 0.260*** 0.279*** (0.0209) (0.0182) (0.0182) (0.0262) (0.0206) (0.0216) Controls ( � ) � ( � ) � Year-Quarter FE � � � � � � Market-Carrier FE � � � Market FE � � � Observations 1,115,482 1,089,818 1,089,818 228,890 222,347 222,347 R-squared 0.095 0.144 0.146 0.160 0.263 0.279 Number of Market-Carrier Pairs 50,659 49,057 49,057 Number of Markets 7,391 7,081 7,081 16 / 1

Panel-IV: BlackRock buys BGI 16 / 1

Testing for reverse causality with panel-IV BlackRock announces acquisition of BGI in 2009:Q2, consummated in 2009:Q4 17 / 1

Testing for reverse causality with panel-IV BlackRock announces acquisition of BGI in 2009:Q2, consummated in 2009:Q4 Airlines a small fraction of both firms’ portfolios ◮ Assume acquisition was not caused by differences across routes in expected ticket price changes 17 / 1

Testing for reverse causality with panel-IV BlackRock announces acquisition of BGI in 2009:Q2, consummated in 2009:Q4 Airlines a small fraction of both firms’ portfolios ◮ Assume acquisition was not caused by differences across routes in expected ticket price changes Route-level treatment variable: 2009:Q1-Implied change in MHHI delta i = Hypothetically-combined MHHI 2009: Q 1, i − Separate MHHI 2009: Q 1, i 17 / 1

Treatment: Implied change in MHHI delta .08 Control Treatment Unassigned .06 Density Mean: 91.3 .04 .02 0 0 50 100 150 200 250 Implied Change in MHHI 18 / 1

Treatment: Implied change in MHHI delta .08 Control Treatment Unassigned .06 Density Mean: 91.3 .04 .02 0 0 50 100 150 200 250 Implied Change in MHHI H0: constant relative price across treated & control routes 18 / 1

Treatment vs. control prices .2 Log of Average Price (Normalized) BlackRock announces acquisition of BGI .15 Consummation of acquisition .1 .05 0 2009q1 2010q1 2011q1 2012q1 2013q1 Control Treatment 19 / 1

Treatment vs. control prices .2 Log of Average Price (Normalized) BlackRock announces acquisition of BGI .15 Consummation of acquisition .1 .05 0 2009q1 2010q1 2011q1 2012q1 2013q1 Control Treatment β IV : up to 11% higher prices due to total common ownership BlackRock-BGI-implied increase in common ownership alone caused 0.6% higher prices 19 / 1

Panel-IV first stage Dependent Variable: MHHI delta Discrete Treatment Continuous Treatment Post-period: 2011Q1 2012Q1 2013Q1 2011-2013 Q1 2011Q1 2012Q1 2013Q1 2011-2013 Q1 (1) (2) (3) (4) (5) (6) (7) (8) Treat × Post 0.0651*** 0.0885*** 0.0879*** 0.0749*** (0.00504) (0.00508) (0.00519) (0.00447) Impl Chg (MHHI delta) 4.050*** 5.756*** 5.740*** 4.742*** × Post (0.291) (0.295) (0.313) (0.273) HHI -0.365*** -0.377*** -0.376*** -0.354*** -0.365*** -0.372*** -0.372*** -0.354*** (0.0273) (0.0213) (0.0225) (0.0162) (0.0214) (0.0156) (0.0159) (0.0113) Controls � � � � � � � � Year FE � � � � � � � � Market-Carrier FE � � � � � � � � Observations 14,828 14,828 14,828 29,656 23,334 23,334 23,334 46,668 Within-R-squared 0.562 0.659 0.710 0.590 0.534 0.647 0.715 0.584 # of Market-Carrier Pairs 7,414 7,414 7,414 7,414 11,667 11,667 11,667 11,667 20 / 1

Panel-IV second stage: price effect Dependent Variable: Log(Average Fare) Discrete Treatment Continuous Treatment Post-period: 2011Q1 2012Q1 2013Q1 2011-2013 Q1 2011Q1 2012Q1 2013Q1 2011-2013 Q1 (1) (2) (3) (4) (5) (6) (7) (8) MHHI delta -0.0150 0.519*** 0.521*** 0.299** -0.149 0.483*** 0.440*** 0.245* (0.174) (0.143) (0.147) (0.141) (0.173) (0.131) (0.141) (0.138) HHI 0.0632 0.296*** 0.299*** 0.226*** 0.0118 0.260*** 0.254*** 0.206*** (0.0822) (0.0672) (0.0697) (0.0605) (0.0768) (0.0573) (0.0617) (0.0553) Controls � � � � � � � � Year FE � � � � � � � � Market-Carrier FE � � � � � � � � Observations 14,828 14,828 14,828 29,656 23,334 23,334 23,334 46,668 R-squared 0.375 0.432 0.414 0.321 0.351 0.411 0.395 0.305 # of Market-Carrier Pairs 7,414 7,414 7,414 7,414 11,667 11,667 11,667 11,667 21 / 1

Panel-IV second stage: price effect Dependent Variable: Log(Average Fare) Discrete Treatment Continuous Treatment Post-period: 2011Q1 2012Q1 2013Q1 2011-2013 Q1 2011Q1 2012Q1 2013Q1 2011-2013 Q1 (1) (2) (3) (4) (5) (6) (7) (8) MHHI delta -0.0150 0.519*** 0.521*** 0.299** -0.149 0.483*** 0.440*** 0.245* (0.174) (0.143) (0.147) (0.141) (0.173) (0.131) (0.141) (0.138) HHI 0.0632 0.296*** 0.299*** 0.226*** 0.0118 0.260*** 0.254*** 0.206*** (0.0822) (0.0672) (0.0697) (0.0605) (0.0768) (0.0573) (0.0617) (0.0553) Controls � � � � � � � � Year FE � � � � � � � � Market-Carrier FE � � � � � � � � Observations 14,828 14,828 14,828 29,656 23,334 23,334 23,334 46,668 R-squared 0.375 0.432 0.414 0.321 0.351 0.411 0.395 0.305 # of Market-Carrier Pairs 7,414 7,414 7,414 7,414 11,667 11,667 11,667 11,667 21 / 1

Summary and conclusions 21 / 1

Summary of results Common ownership is ubiquitous 1 22 / 1

Summary of results Common ownership is ubiquitous 1 Portfolio firms lack incentives to compete 2 ◮ More than 10 times larger than what DoJ/FTC horizontal merger guidelines presume “likely to enhance market power” 22 / 1

Summary of results Common ownership is ubiquitous 1 Portfolio firms lack incentives to compete 2 ◮ More than 10 times larger than what DoJ/FTC horizontal merger guidelines presume “likely to enhance market power” When firms lack incentives to compete, they don’t 3 ◮ 3 - 11% higher prices, compared to separate ownership ◮ Magnitudes & timing similar to unregulated mergers 22 / 1

Summary of results Common ownership is ubiquitous 1 Portfolio firms lack incentives to compete 2 ◮ More than 10 times larger than what DoJ/FTC horizontal merger guidelines presume “likely to enhance market power” When firms lack incentives to compete, they don’t 3 ◮ 3 - 11% higher prices, compared to separate ownership ◮ Magnitudes & timing similar to unregulated mergers Consolidation in the asset management industry affects 4 portfolio firms’ product market competition ◮ 0.6% on the average route, from one acquisition alone 22 / 1

Conclusion: a policy “trilemma” Neo-classical economics is internally inconsistent. It is impossible to design an economic system in which Shareholders are diversified (e.g., CAPM) 1 Firms act in shareholders’ interest (good governance) 2 Product market competition prevails (efficiency) 3 23 / 1

Conclusion: a policy “trilemma” Neo-classical economics is internally inconsistent. It is impossible to design an economic system in which Shareholders are diversified (e.g., CAPM) 1 Firms act in shareholders’ interest (good governance) 2 Product market competition prevails (efficiency) 3 Quantitative question: can we improve welfare by ◮ Reducing within-industry diversification (which potentially improves governance and competition, but is it feasible) ? 23 / 1

Conclusion: a policy “trilemma” Neo-classical economics is internally inconsistent. It is impossible to design an economic system in which Shareholders are diversified (e.g., CAPM) 1 Firms act in shareholders’ interest (good governance) 2 Product market competition prevails (efficiency) 3 Quantitative question: can we improve welfare by ◮ Reducing within-industry diversification (which potentially improves governance and competition, but is it feasible) ? ◮ Reducing voting power of “passive” investors (or is separation of ownership and control a bigger concern) ? 23 / 1

Conclusion: a policy “trilemma” Neo-classical economics is internally inconsistent. It is impossible to design an economic system in which Shareholders are diversified (e.g., CAPM) 1 Firms act in shareholders’ interest (good governance) 2 Product market competition prevails (efficiency) 3 Quantitative question: can we improve welfare by ◮ Reducing within-industry diversification (which potentially improves governance and competition, but is it feasible) ? ◮ Reducing voting power of “passive” investors (or is separation of ownership and control a bigger concern) ? ◮ Or is there just enough competition with present-day ownership structures (but what about the future) ? 23 / 1

Potential mechanisms and legal implications 23 / 1

“What is the mechanism?” Showed incentives and outcomes, as typical in IO 24 / 1

“What is the mechanism?” Showed incentives and outcomes, as typical in IO Comforting to know plausible mechanisms exist Direct channel 1 Indirect channel 2 24 / 1

“What is the mechanism?” Showed incentives and outcomes, as typical in IO Comforting to know plausible mechanisms exist Direct channel 1 Indirect channel 2 24 / 1

1. Direct channel How do institutional investors affect corporate policies? 25 / 1

1. Direct channel How do institutional investors affect corporate policies? Just as we teach it 25 / 1

1. Direct channel How do institutional investors affect corporate policies? Just as we teach it ◮ They elect directors 25 / 1

1. Direct channel How do institutional investors affect corporate policies? Just as we teach it ◮ They elect directors (sometimes themselves) 25 / 1

1. Direct channel How do institutional investors affect corporate policies? Just as we teach it ◮ They elect directors (sometimes themselves) ◮ Set pay/turnover: industry-sensitive (Bebchuk & Fried; Jenter & Kanaan) 25 / 1

1. Direct channel How do institutional investors affect corporate policies? Just as we teach it ◮ They elect directors (sometimes themselves) ◮ Set pay/turnover: industry-sensitive (Bebchuk & Fried; Jenter & Kanaan) ◮ “Engagement is the carrot, voting is the stick.” 25 / 1

1. Direct channel How do institutional investors affect corporate policies? Just as we teach it ◮ They elect directors (sometimes themselves) ◮ Set pay/turnover: industry-sensitive (Bebchuk & Fried; Jenter & Kanaan) ◮ “Engagement is the carrot, voting is the stick.” What is discussed in engagement meetings? We don’t know. But even in earnings calls, investors openly discuss capacity decisions with airlines 25 / 1