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Steering capital : the growing private authority of index providers in the age of passive asset management
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Petry, Johannes, Fichtner, Jan and Heemskerk, Eelke (2021) Steering capital : the growing private authority of index providers in the age of passive asset management. Review of International Political Economy, 28 (1). 152-176 . doi:10.1080/09692290.2019.1699147
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Official URL: http://dx.doi.org/10.1080/09692290.2019.1699147
Abstract
Since the global financial crisis, there is a massive shift of assets towards index funds. Rather than picking stocks, index funds replicate stock indices such as the S&P 500. But where do these indices actually come from? This paper analyzes the politico-economic role of index providers, a small group of highly profitable firms including MSCI, S&P DJI, and FTSE Russell, and develops a research agenda from an IPE perspective. We argue that these index providers have become actors that exercise growing private authority as they steer investments through the indices they create and maintain. While technical expertise is a precondition, their brand is the primary source of index provider authority, which is entrenched through network externalities. Rather than a purely technical exercise, constructing indices is inherently political. Which companies or countries are included into an index or excluded (i.e. receive investment in- or outflows) is based on criteria defined by index providers, thereby setting standards for corporate governance and investor access. Hence, in this new age of passive asset management index providers are becoming gatekeepers that exert de facto regulatory power and thus may have important effects on corporate governance and the economic policies of countries.
| Item Type: | Journal Article | ||||||||
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| Divisions: | Faculty of Social Sciences > Politics and International Studies | ||||||||
| Journal or Publication Title: | Review of International Political Economy | ||||||||
| Publisher: | Routledge | ||||||||
| ISSN: | 0969-2290 | ||||||||
| Official Date: | 2021 | ||||||||
| Dates: |
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| Volume: | 28 | ||||||||
| Number: | 1 | ||||||||
| Page Range: | 152-176 | ||||||||
| DOI: | 10.1080/09692290.2019.1699147 | ||||||||
| Status: | Peer Reviewed | ||||||||
| Publication Status: | Published | ||||||||
| Publisher Statement: | “This is an Accepted Manuscript of an article published by Taylor & Francis in Review of International Political Economy on 10/12/2019, available online: http://www.tandfonline.com/10.1080/09692290.2019.1699147 | ||||||||
| Access rights to Published version: | Open Access | ||||||||
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