Ties that Bind: How Business Connections Affect Mutual Fund Activism
78 Pages Posted: 29 Aug 2013 Last revised: 14 Apr 2016
Date Written: March 22, 2016
We investigate whether business ties with portfolio firms influence mutual funds' proxy voting using a comprehensive data set spanning 2003 to 2011. In contrast to prior literature, we find that business ties significantly influence pro-management voting at the level of individual pairs of fund families and firms after controlling for ISS recommendations and holdings. The association is significant only for shareholder-sponsored proposals and stronger for those that pass or fail by relatively narrow margins. Our findings are consistent with a demand-driven model of biased voting in which company managers use existing business ties with funds to influence how they vote.
Keywords: mutual funds, activism, business ties, proxy vote disclosure
JEL Classification: D72, G23, G34, G38, K22
Suggested Citation: Suggested Citation