NBER Working Papers by Todd Gormley

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Working Papers

September 2016Standing on the Shoulders of Giants: The Effect of Passive Investors on Activism
with Ian R. Appel, Donald B. Keim: w22707
We analyze whether the growing importance of passive investors has influenced the campaigns, tactics, and successes of activists. We find activists are more likely to pursue changes to corporate control or influence (e.g., via board representation) and to forego more incremental changes to corporate policies when a larger share of the target company’s stock is held by passively managed mutual funds. Furthermore, higher passive ownership is associated with increased use of proxy fights and a higher likelihood the activist obtains board representation or the sale of the targeted company. Overall, our findings suggest that the increasingly large ownership stakes of passive institutional investors mitigate free-rider problems associated with certain forms of intervention and ultimately increas...
October 2011Ending "Too Big To Fail": Government Promises vs. Investor Perceptions
with Simon Johnson, Changyong Rhee: w17518
Can a government credibly promise not to bailout firms whose failure would have major negative systemic consequences? Our analysis of Korea's 1997-99 crisis, suggests an answer: No. Despite a general "no bailout" policy during the crisis, the largest Korean corporate groups (chaebol) - facing severe financial and governance problems - could still borrow heavily from households through issuing bonds at prices implying very low expected default risk. The evidence suggests "too big to fail" beliefs were not eliminated by government promises, presumably because investors believed that this policy was not time consistent. Subsequent government handling of potential and actual defaults by Daewoo and Hyundai confirmed the market view that creditors would be protected.

Published: Ending “Too Big To Fail”: Government Promises Versus Investor Perceptions* Todd A. Gormley1, Simon Johnson2,3 and Changyong Rhee4 Review of Finance (2015) 19 (2): 491-518.

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