Ties that Bind: How Business Connections Affect Mutual Fund Activism

78 Pages Posted: 29 Aug 2013 Last revised: 14 Apr 2016

Dragana Cvijanovic

University of North Carolina Kenan-Flagler Business School

Amil Dasgupta

London School of Economics (LSE); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Konstantinos E. Zachariadis

School of Economics and Finance, Queen Mary University of London

Date Written: March 22, 2016

Abstract

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

Cvijanovic, Dragana and Dasgupta, Amil and Zachariadis, Konstantinos E., Ties that Bind: How Business Connections Affect Mutual Fund Activism (March 22, 2016). Journal of Finance, Forthcoming; European Corporate Governance Institute (ECGI) - Finance Working Paper No. 438/2014; UNC Kenan-Flagler Research Paper No. 2317212. Available at SSRN: https://ssrn.com/abstract=2317212 or http://dx.doi.org/10.2139/ssrn.2317212

Dragana Cvijanovic

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

Amil Dasgupta

London School of Economics (LSE) ( email )

Houghton Street
London WC2A 2AE
United Kingdom
+44 20 7955 7458 (Phone)
+44 20 7955 7420 (Fax)

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Konstantinos E. Zachariadis (Contact Author)

School of Economics and Finance, Queen Mary University of London ( email )

Graduate Centre
Mile End Campus
London, E1 4NS
United Kingdom
+44 20 7882 8698 (Phone)

HOME PAGE: http://www.konstantinosezachariadis.com

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