The Role of Mutual Funds in Corporate Governance: Evidence from Mutual Funds’ Proxy Voting and Trading Behavior

47 Pages Posted: 25 Jul 2011 Last revised: 30 Jul 2015

Ying Duan

Simon Fraser University (SFU) - Beedie School of Business

Yawen Jiao

University of California, Riverside

Date Written: June 24, 2014

Abstract

This paper examines mutual fund families’ proxy voting records to analyze their choices between voting against management (“voice”) and voting with their feet (“exit”). Even though proxy voting is particularly conducive to governance through voice rather than exit, we provide evidence that both exit and voice are important governance mechanisms when Institutional Shareholder Services recommends voting against management. Funds with smaller ownership blocks and shorter investment horizons are more likely to exit, and funds are more likely to exit small, liquid firms with greater insider ownership.

Keywords: mutual funds, proxy voting, exit, governance

JEL Classification: G23, G34

Suggested Citation

Duan, Ying and Jiao, Yawen, The Role of Mutual Funds in Corporate Governance: Evidence from Mutual Funds’ Proxy Voting and Trading Behavior (June 24, 2014). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming; University of Alberta School of Business Research Paper No. 1894942. Available at SSRN: https://ssrn.com/abstract=1894942 or http://dx.doi.org/10.2139/ssrn.1894942

Ying Duan (Contact Author)

Simon Fraser University (SFU) - Beedie School of Business ( email )

8888 University Drive
Burnaby, British Colombia V5A 1S6
Canada

Yawen Jiao

University of California, Riverside ( email )

Riverside, CA 92521
United States

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