Are Mutual Funds Active Voters?
Pennsylvania State University - Department of Finance
April 15, 2014
Review of Financial Studies, 2015
Mutual funds vary greatly in their reliance on proxy advisory recommendations. Over 25% of funds rely almost entirely on ISS recommendations, while other funds place little weight on them. Funds with higher benefits and lower costs of researching items up for vote are less likely to rely on ISS. These actively voting funds are less likely vote in a 'one size fits all' manner and they earn higher alphas, consistent with benefits from this allocation of resources. For the underlying firms, the presence of actively voting funds mitigates the influence of ISS and helps sway shareholder votes toward value-maximizing outcomes.
Number of Pages in PDF File: 64
Keywords: Shareholder voting, agency costs, monitors, mutual funds
JEL Classification: G30
Date posted: September 13, 2012 ; Last revised: April 9, 2015