Areas of Expertise (9)
Laura Starks is a finance professor and the associate dean for research at the McCombs School of Business. Her expertise includes personal retirement investing, mutual fund management, and environmental and social investing. Her latest research examines the role investors play in their own retirement account management and how their hands-off approach may improve longterm performance.
Starks is the Charles E. and Sarah M Seay Regents Chair in Finance and is the director of the AIM Investment Center, which integrates financial research, investment education, and practice at UT.
She has served on the editorial boards of nearly two dozen academic journals, and her own research has appeared in the Journal of Finance, the Journal of Financial Economics, Financial Management, and the Journal of Business, among many others. Starks has received numerous research and teaching awards and travels the world as an invited speaker and finance expert.
Starks provides consulting advice to companies as well as international, federal, and state governmental agencies. Most recently, she was a member of the expert group for the Norwegian Government Pension Fund, the largest sovereign wealth fund in the world. Starks has also served as an expert witness in federal cases for Wells Fargo, Merrill Lynch Asset Management, Vesta Insurance Company, and Dupont. She has provided expert consulting assistance in Florida State Board of Administration [FSBA] v. Alliance Capital Management, in which a Florida jury found Alliance Capital not liable for the losses incurred by the FSBA pension fund as a result of Alliance Capital's investments in Enron stock.
The University of Texas at Austin, McCombs School of Business: Ph.D., Finance
The University of Texas at San Antonio: MBA., Finance
University of Texas at Austin: B.A., Economics
Media Appearances (5)
Press Release from the Expert Group on the Norwegian GPFG's Investments in Coal and Petroleum Companies
Government Administration Services online
"We believe active ownership and engagement are appropriate primary tools for the GPFG to use to address climate-related issues. We recommend ways of enhancing the Fund’s efforts in this area. We also propose that the Fund continues to support relevant climate change research. Finally, we propose a mechanism whereby the worst cases of climate offenders can be excluded from the Fund on a case-by-case basis. The ownership efforts should be the primary tool, and the exclusions and engagement processes should work together in a coordinated way."
Perspectives on Investor Activism
The National Law Review online
“Institutional investors, whether activist investors or not, have seen an increase in their power to influence corporate policy through voting," says Laura Starks
Norway's Pension Fund Global to Shift Exclusion Powers to Norges Bank
Investment & Pensions Europe online
The Norwegian government is to shift responsibility for excluding investments from the Government Pension Fund Global (GPFG) to Norges Bank, which runs the fund, and disband the 10-year-old Council on Ethics. Finance minister Siv Jensen said openness about the ethical exclusions of companies would still be key in the management of the fund, and said the ministry was appointing a new group of experts to assess Norges Bank’s work in this particular area. The group is to be chaired by economist Martin Skancke and will include Elroy Dimson, Michael Hoel, Laura Starks, Gro Nystuen and Magdalena Kettis.
Norway Weighs Going Green with its $800 Billion Pension Fund
The Christian Science Monitor online
"Under the most radical of the ten recommendations, the council called for delegating exclusion responsibility from the Finance Ministry to Norway’s Central Bank, the managers of the fund. This could create an arm’s length distance on conflicting roles, such as the Lockheed Martin case, says Laura Starks, professor at the University of Texas at Austin, and one of the five members of the strategy council. 'Politics should not be a reason for a decision,' says Professor Starks."
Norway's $800 Billion Fund Should Lose Independent Ethics Panel (Report)
Starks and fellow GPFG expert panel members called on Norway's sovereign wealth fund to finance independent research on the impact of responsible investment practices on portfolio value.
Listing of top scholarly works by Laura Starks.
Using a cross-country sample, we examine the chief executive officer (CEO) tournament structure (measured alternatively as the ratio and the difference of pay between the CEO and other top executives within a firm). We find the tournament structure to vary systematically with firm and country cultural characteristics.
We survey institutional investors to better understand their role in the corporate governance of firms. Consistent with a number of theories, we document widespread behind‐the‐scenes intervention as well as governance‐motivated exit.
We consider how gender diversity could affect firm value, that is, what mechanisms could explain how female directors benefit corporate board performance. We hypothesize and provide evidence that women directors contribute to boards by offering specific functional expertise, often missing from corporate boards.
Participants in defined contribution (DC) retirement plans rarely adjust their portfolio allocations, suggesting that their investment choices and consequent money flows are sticky and not discerning. Yet, the participants' inertia could be offset by the DC plan sponsors, who adjust the plan's investment options. We examine these countervailing influences on flows into U.S. mutual funds. We find that flows into funds that derive from DC assets are more volatile and exhibit more performance sensitivity than non-DC flows, primarily due to the adjustments of the investment options by the plan sponsors. Thus, DC retirement money is less sticky and more discerning.
Using transactions generally overlooked in the compensation literature-joint ventures, strategic alliances, seasoned equity offerings (SEOs), and spin-offs-we find that, beyond compensation for increases in firm size or complexity, chief executive officers (CEOs) are rewarded for their deal-making activities. Boards pay CEOs for the core motivation of the deal, as well as for deal volume. We find that compensating for volume instead of core value creation occurs under weak board monitoring and that in deal-making firms, neither CEO turnover nor pay-for-performance responds to under-performance. We introduce an input monitoring explanation for these results: boards compensate for deal volume because of their inability to perfectly monitor outputs.
Financially distressed firms have limited ability to manage exchange rate exposure over time which could cause their fundamental value to be sensitive to the cash flow volatility related to currency movements. Accordingly, we hypothesize that the likelihood and costs of financial distress help explain cross-sectional variations in return sensitivity to currency movements. We find that the level of exchange rate exposure elasticity is related to proxies for the likelihood of financial distress, growth opportunities, and product uniqueness. Further, firms with a greater likelihood and higher costs of financial distress exhibit greater abnormal returns in response to large exchange rate shocks.
We examine whether corporate governance differences affect firm valuation in cross-border mergers. We find that takeover premiums are decreasing in the quality of the foreign acquirer's home country governance for deals completed with stock, suggesting that the acquirers compensate target shareholders for the resulting exposure to inferior corporate governance regimes. Correspondingly, we find that the acquiring firm stockholders' abnormal returns at the merger announcement are increasing in the quality of corporate governance for stock offers. Finally, we find that foreign acquirers from countries with better corporate governance are more likely to make stock offers.
Mutual funds are held by investors in taxable and tax-qualified retirement accounts. We investigate whether the characteristics, investment strategies, and performance of mutual funds held by these diverse tax clienteles differ. Examining both mutual fund distributions and mutual fund holdings, we find that funds held primarily by taxable investors choose investment strategies that result in lower tax burdens than funds held primarily in tax-qualified accounts. Despite these differences, we find no evidence that any investment constraints that may arise from these tax-efficient investment strategies result in performance differences between funds held by different tax clienteles.