Mutual Funds as Monitors: Evidence From Mutual Fund Voting

Abstract

We address whether mutual funds act effectively through the proxy voting process by supporting wealth increasing items. We examine 212,620 voting decisions made by 1,794 mutual funds from 94 fund families for 1,047 shareholder proposals voted on between July 2003 and June 2005. We find that mutual funds vote more affirmatively for wealth increasing proposals and that funds’ voting approval rates for these beneficial resolutions are significantly higher than those of other investors. Additionally, fund families do not appear to vote uniformly for proposal types and funds may not always vote consistently within fund families with the characteristics of the fund influencing its role as monitor. Funds also support proposals targeting firms with weak governance. Finally, fund voting approval rates significantly impact whether a proposal passes and whether one is implemented. Our findings provide support for mutual funds being effective monitors.

Keywords: Proxy voting, mutual funds, corporate governance, shareholder proposals

JEL Classification: G32, G34, J33