Informed Voting

Abstract

Information production by shareholders is essential for proxy voting to produce efficient outcomes. We propose a stock return-based measure to capture informed voting. Our measure, the vote alpha, quantifies the extent to which a shareholder votes in the direction that the market perceives as value increasing. Using data on mutual funds' proxy voting records, we find that the vote alpha exhibits persistence. Our main result shows that the voting pattern of high vote alpha funds positively predicts long-run abnormal stock returns following contentious votes, suggesting that these funds possess information about the shareholder value implication of contentious governance proposals.

Keywords: Information production, proxy voting, stock returns, mutual funds, corporate governance

JEL Classification: G34, G23, G12, G14