Are Mutual Funds Active Voters?

Peter Iliev

Pennsylvania State University - Department of Finance

Michelle Lowry

Smeal College of Business

March 17, 2014

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: 63

Keywords: Shareholder voting, agency costs, monitors, mutual funds

JEL Classification: G30

working papers series

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Date posted: September 13, 2012 ; Last revised: March 18, 2014

Suggested Citation

Iliev, Peter and Lowry, Michelle, Are Mutual Funds Active Voters? (March 17, 2014). Available at SSRN: http://ssrn.com/abstract=2145398 or http://dx.doi.org/10.2139/ssrn.2145398

Contact Information

Peter Iliev
Pennsylvania State University - Department of Finance ( email )
University Park, PA 16802
United States
Michelle B. Lowry (Contact Author)
Smeal College of Business ( email )
University Park, PA 16802
United States
814-863-6372 (Phone)
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