Ties that Bind: How Business Connections Affect Mutual Fund Activism
University of North Carolina Kenan-Flagler Business School
London School of Economics (LSE); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)
Konstantinos E. Zachariadis
London School of Economics
March 22, 2016
Journal of Finance, Forthcoming
European Corporate Governance Institute (ECGI) - Finance Working Paper No. 438/2014
UNC Kenan-Flagler Research Paper No. 2317212
We investigate whether business ties with portfolio firms influence mutual funds' proxy voting using a comprehensive data set spanning 2003 to 2011. In contrast to prior literature, we find that business ties significantly influence pro-management voting at the level of individual pairs of fund families and firms after controlling for ISS recommendations and holdings. The association is significant only for shareholder-sponsored proposals and stronger for those that pass or fail by relatively narrow margins. Our findings are consistent with a demand-driven model of biased voting in which company managers use existing business ties with funds to influence how they vote.
Number of Pages in PDF File: 78
Keywords: mutual funds, activism, business ties, proxy vote disclosure
JEL Classification: D72, G23, G34, G38, K22
Date posted: August 29, 2013 ; Last revised: April 14, 2016
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