New Study on the CalPERS Effect Wins 2006 Moskowitz Prize for SRI Research



October 30, 2006


Berkeley CA - The 2006 Moskowitz Prize for Socially Responsible Investing has been awarded to a new study that explores the motivation and impact of institutional activism by reviewing the stocks on CalPERs Focus List from 1992-2005. The study finds a positive 25 basis point positive benefit from the CalPERS program, which translated into wealth creation of $3.1 billion.


The winning paper – “Monitoring the Monitor: Evaluating CalPERS' Shareholder Activism” – by Brad Barber of the University of California at Davis reviews the theory and empirical evidence underlying the motivation for institutional activism by public pension funds. Barber analyzed the gains from CalPERS activism linked to their focus list firms and theorizes that CalPERS has generally pursued reforms at focus list firms that increase shareholder rights.


Over the years, there have been numerous studies exploring the impact of CalPERS' corporate governance program on stock prices. Some have argued that the program has added significant value, while others have found a less powerful effect, and still others have questioned whether there is a 'CalPERS Effect' at all.


Based on conservative short-term announcement reactions, Barber shows CalPERS activism has resulted in total wealth creation of $3.1 billion. But, he argues, institutional activism should be limited to situations where there is strong theoretical and empirical evidence indicating the proposed reforms will increase shareholder value. Full text of the 2006 winning paper is available online at Social Science Research Network.


Awarded by the Center for Responsible Business at the Haas School of Business, in cooperation with the Social Investment Forum, the Prize promotes the concept, practice, and growth of socially responsible investing.


“Brad Barber's study of how CalPERS' shareholder activism affects stock returns addresses some of the most important issues related to socially responsible investment, and his results are of great importance to SRI practitioners,” said David Levine, professor of economics at the Haas School of Business and one of the Moskowitz Prize judges.


Lloyd Kurtz, Moskowitz Prize administrator and senior portfolio manager at Nelson Capital Management, an investment advisory affiliate of Wells Fargo, added, “Both social investors and corporate governance experts are concerned that corporate managements need to be held more accountable to shareholders – this study shows that CalPERS actually derived an investment performance benefit by doing so.”


“Most of the SRI research literature has examined how SRI affects investors, and the smaller literature that looks at the effects of SRI on companies has emphasized possible changes to companies' cost of capital. Barber's study is the most careful and encompassing to look at how investor engagement can affect a company’s management and valuation,” added Levine.

Honorable mentions were also awarded to two other outstanding studies this year. The first honorable mention is presented to Harrison Hong and Marcin Kacperczyk for their Princeton University Working Paper, “The Price of Sin: The Effects on Social Norms on Markets” – one of the most thorough reviews of tobacco stock performance ever done, with detailed analysis of returns since the 1920s. The second is presented to Baruch Lev, Christine Petrovits, and Suresh Radhakrishnan for “Is Doing Good Good for You? Yes, Charitable Contributions Enhance Revenue Growth”. This Working Paper from New York University’s Stern School of Business investigates the relationship between companies’ charitable giving and growth dynamics, and is the first major study of this topic in over a decade.


The sponsors of the Moskowitz Prize are: Calvert Group, First Affirmative Financial Network, Nelson Capital Management, KLD Research & Analytics, Inc., Rockefeller and Co., and Trillium Asset Management.


For more information, visit the Moskowitz Research Program.

 

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