Are passive index funds active owners? Corporate governance consequences of passive investing

The article provides an in-depth analysis of available evidence concerning the corporate governance role of passive investing and, taking the current EU institutional investor-driven corporate governance strategy as a reference, demonstrates the shortcomings of the regulatory approaches to institutional shareholder engagement focused mainly on short-termism. This article therefore argues that, in order to promote more effective passive investor engagement, lawmakers, regulators and corporate governance professionals should tackle cost-related issues more effectively. Moreover, pursuing this line of thought, it outlines an analytical framework of potential regulatory strategies aimed at reducing engagement-related costs in order to encourage passive index fund managers and, more generally, non-activist institutional investors to play a more effective oversight role over investee companies.