From “Outside The Ivory Tower”, by Dr. Susanne Trimbath
The second part in a series of blogs to detail the importance of corporate governance to institutional investors; to describe the tension created by their desire to earn extra revenue from stock lending; and to outline the challenges to corporate governance presented by the subsequent lack of accounting for voting rights.
Historical Transitions
Over time, active investing transforms as laws, politics, and economic forces shift. At work changing the shape of active investing strategies are significant shifts in the financing markets. Preferred stock was the most favored form of financing for corporate actions (takeovers) during the 1970s. During the 1980s, debt financing was plentiful so that junk bond takeovers and leveraged buyouts were the order of the day for effecting change at inefficient corporations. In the early 1990s, there was an implosion in the debt markets. As the tech bubble began to inflate, equity financing was prevalent. Because each form of financing carries different corporate governance implications, the ability of active investors to influence corporate behavior also changed. [entire post]