This part of also involves case studies among institutional investors (such as AP funds, Church of Sweden and LO) with the objective to identify common trends and obstacles in corporate engagement in practice. The area could be extended to cover surveys among companies and investors concerning corporate engagement policies.

Reserarchers:
Bauer, Rob
Braun, Robin
Cerin, Pontus
Hamilton, Ian
Hann, Daniel

Within the area of Corporate governance and engagement the following several studies are carried out:

• Socially Responsible Indirect Governance – Leverage to Sustainable Development? (Cerin) The objective is to contribute to an understanding on how ethically concerned organizations can permeate their views on good conduct to the behaviour of the companies in which they invest, via the influence of the institutional investor. One study focuses on the transfer of values from the organization investing to the firm in which an investment is made, while another study focuses on the potentials to increase this value transfer by working in investing organization coalitions between or among (i) church and labour union, and (ii) church and labour union and their respective international counterparts. Both studies will engage in dialogue processes with end uses, and result in academic papers and in popular science papers. They will aim at institutional investors interested in fostering dialogue on ethical investments in general and sustainable investments in particular. A case study research method is used.
• Institutional Investor Coalitions (Cerin) The case study research method applied would primarily consist of interviews with both investors and companies to explore the efficacy of a coalition group in bringing about corporate change. Also, the study would include Dialogue Seminars with both sets of actors, to afford an opportunity for interaction among the players themselves.
• Sustainable Investment and the Swedish Pension Funds (Hamilton) A PhD project is studying if and how AP-funds are fulfilling government obligations towards Sustainable Investment. Initially, more specific research objectives have been formulated: (i) to determine AP-funds’ (boards of directors) interpretation of the government mission on ethical and environmental considerations and AP-fund formulation of SI policy documents; (ii) to determine what SI policies AP-funds form and understand to what extent external collaborators influence the process; (iii) to describe the assurance process in which SI considerations of externally managed funds are transparent with AP-funds; (iv) to describe the set of actions AP-funds take when a portfolio company is not fulfilling requirements for ethical or environmental considerations; (v) to determine to what degree AP-funds exercise “voice” together with other institutional investors in shareholder activist cases for social justice or environmental responsibility; (vi) to develop an explanatory framework that associates a number of key financial actors with factors that lead to the development and implementation of SI consideration in AP-funds’ investment decisions. In the first phase (2007), the project will concentrate on: (i) the terminology on investments (SI/SRI etc.) that take social and environmental concerns into, (ii) how AP funds interpret governmental directives, and (iii) AP funds and corporate engagement.
• Corporate Governance and Excessive Capital Spending: Evidence from Europe (Braun and Bauer) On the relation between corporate governance and capital spending, the main hypothesis is that weakly governed firms are more likely to undertake projects that are not shareholder-value enhancing. We find that this is the case. This paper has been presented at internal seminars frequently and is now undergoing revision. A publishable paper is expected in 2007.
• Corporate Governance and Credit Risk:  Evidence from European Credit Default Swaps (Hann) This study circumvents the usual problems associated with relating CSR and governance to bond premiums in non-U.S. areas (European fixed-income information is very scarce). We have information on credit default swaps, which is a more pure measure of credit risk than standard bond premiums. We are now investigating the association between CDS and governance and we intend to complement this research with CSR information. This is part of a broader PhD project.
• Research Note: Corporate Governance and the Cost of Equity Capital: Evidence from GMI’s Governance Rating (Derwall and Verwijmeren) Our study uses governance ratings provided by Governance Metrics International (GMI) to assess the association between the quality of corporate governance and the cost of equity capital of public firms. While prior empirical research revolves around the association between corporate responsibility measures and a firm’s market value, only few studies isolate the cost-of-equity component that is critical to portraying equity markets’ attention to risks associated with poor corporate governance. More specifically, we first document that firms with better overall corporate governance enjoy a lower cost of equity capital. Second, we find that better governance is associated with lower systematic risk, as measured by a firm’s beta. Third, we relate corporate governance to idiosyncratic (i.e., firm-specific) risk. Unlike earlier studies, we use the Fama-French three-factor market equilibrium model to measure idiosyncratic risk because several studies suggest that idiosyncratic risk measured by more parsimonious models, such as the traditionally used CAPM, comprises both extra-market risk and firm-specific risk. We find that better governance is associated with lower idiosyncratic risk even if we control for two extra-market risk factors developed by Fama and French (1993).This research note is available at the ECCE website www.corporate-engagement.com/download.php?publicationID=146564. We expect to perform similar research with ISS governance data, and CSR data from KLD, Innovest, SAM, and Vigeo.