We use both our own and third-party cookies to enhance your user experience. Your continued use of the site means that you accept our cookies policy.


Madrid, 11 July 2019.- Professors Lucian Bebchuk and Scott Hirst won the VIII Jaime Fernández de Araoz Award on Corporate Finance, for their work titled Index Funds and the Future of Corporate Governance: Theory, Evidence and Policy. The paper analyses how the management decisions taken by the directors of index funds have a considerable impact on good corporate governance and on the functioning of listed companies and the economy.

The authors

Lucian Bebchuk, an Israeli-born American, is a professor of law, economics and finance and directs the Corporate Governance Programme at Harvard Law School. Bebchuk is the author or co-author of more than one hundred research papers, as well as the acclaimed book Pay without Performance: The Unfulfilled Promise of Executive Compensation. Bebchuk’s articles have been published in the top academic law, economics and finance magazines. Professor Bebchuk teaches at Harvard Law School, where he is the James Barr Ames Professor of Law, Economics, and Finance, as well as Director of the Program on Corporate Governance. He is also a Fellow of the American Academy of Arts and Sciences and a Research Associate of the National Bureau of Economic Research. Professor Bebchuk received a B.A. in mathematics and economics from the University of Haifa, an LL.B. from Tel Aviv University (TAU), an LL.M. and S.J.D. from the Harvard Law School, and an M.A. and Ph.D. from the Harvard Economics Department.

Scott Hirst, an Australian-born resident of the United States, is an associate professor of law at Boston University. His research seeks to explain phenomena in corporate law. His work combines empirical methods and conceptual analyses of finance, accounting and economics, with special attention to the institutional environment in which companies and investors make their decisions. Hirst is a Doctor of Juridical Science (SJD) from Harvard University, has a Bachelor’s Degree in Law and Commerce from the University of Queensland (Australia) and a Master’s Degree in Law from Harvard University.

The paper’s main conclusions

The results presented in the article are key to understanding the mechanisms of index fund management decisions and how policy design can contribute to the improvement of index funds.

Index funds are steadily increasing their stakes in American listed companies; currently they account for more than one-fifth and their stake is on the rise. It is to be hoped that the management decisions made by the managers of index funds – the way in which they supervise, vote and relate to the companies in their portfolios – will have a significant impact on corporate governance and the functioning of listed companies and the economy.

In their work, the authors highlight the conflicts that exist today in this exercise of control by investors, which is exercised between company managers and fund managers, who often act without the required transparency in the exercise of their functions.

The winning paper shows that index funds have a considerable tendency not to invest enough in management and to postpone excessively the preferences and position of those responsible for corporate management.

For the first time, detailed and comprehensive evidence is presented covering the full range of actions undertaken by those responsible for the management of index funds, as well as those that they fail to undertake.

One of the main conclusions of the analysis is that an increase in the responsibility of index funds for overseeing corporate governance will lead to an exponential improvement in long-term corporate governance and a better functioning of financial capitalism.

The authors of the paper recommend imposing limits on the concentration of sector- and company-specific positions of index funds in order to avoid a dominant position that disrupts the proper functioning of prices and of the market.

Finally, they warn the authorities and market players of the importance of becoming aware of the problem in order to be able to solve it and not look the other way as they have done so far.

Summary of the winning paper of the VIII Edition Jaime Fernández de Araoz on Corporate Finance Award.

If you would like to read the complete work, you can click here aquí.