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
August 10, 2014
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 individual proposals after controlling for unobserved heterogeneity across firms, funds, and time, and for ISS recommendations and holdings. The effect is strongest for highly contested proposals where votes are critical. The prominent 2006 class action lawsuits against 401(K) sponsors and providers affected the voting of fund families differently depending on whether they were sued, suggesting a link between investor attention and corporate governance.
Number of Pages in PDF File: 40
Keywords: mutual funds, activism, business ties, proxy vote disclosure
JEL Classification: D72, G23, G34, G38, K22
Date posted: August 29, 2013 ; Last revised: September 20, 2014
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