Are Mutual Funds Active Voters?
Pennsylvania State University - Department of Finance
Smeal College of Business
December 4, 2013
Despite growing concern regarding the influence of proxy advisory service companies in the United States, many mutual funds place relatively little weight on their recommendations. We relate the extent to which funds rely on such recommendations to funds’ costs and benefits of evaluating items up for vote. We find that funds with high net benefits of voting are significantly less likely to rely on ISS recommendations, and significantly more likely to consider the specifics of the underlying firms rather than vote in a ‘one-size-fits-all’ manner. Moreover, these strategies are associated with higher fund alphas, suggesting benefits from this allocation of resources. Finally, from the perspective of the underlying firms, the presence of actively voting funds mitigates the influence of ISS and helps to sway shareholder votes toward value-maximizing outcomes.
Number of Pages in PDF File: 64
Keywords: Shareholder voting, agency costs, monitors, mutual funds
JEL Classification: G30working papers series
Date posted: September 13, 2012 ; Last revised: December 5, 2013
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
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