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
May 15, 2015
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 dataset spanning 2003 to 2011. In contrast to the prior literature, we find that ties significantly influence voting at the level of arbitrary pairs of fund-families and firms and individual proposals 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 proxy voting in which company managers use existing business ties with institutional investors to influence voting.
Number of Pages in PDF File: 96
Keywords: mutual funds, activism, business ties, proxy vote disclosure
JEL Classification: D72, G23, G34, G38, K22
Date posted: August 29, 2013 ; Last revised: May 16, 2015
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