Picking Friends Before Picking (Proxy) Fights: How Mutual Fund Voting Shapes Proxy Contests

74 Pages Posted: 17 Jan 2018 Last revised: 12 Mar 2019

See all articles by Alon Brav

Alon Brav

Duke University - Fuqua School of Business; European Corporate Governance Institute (ECGI); National Bureau of Economic Research (NBER)

Wei Jiang

Columbia Business School - Finance and Economics; ECGI; NBER

Tao Li

University of Florida - Department of Finance, Insurance and Real Estate

James Pinnington

Duke University- Fuqua School of Business

Date Written: March 1, 2018

Abstract

This paper studies mutual fund voting in proxy contests using a comprehensive sample of voting records over the period 2008-2015, taking into account selective targeting by activists. We find that firm, fund, and event characteristics generate substantial heterogeneity among investors in their support for the dissident, including their reliance on proxy advisors. Notably, active funds are significantly more pro-dissident than passive funds. We also uncover evidence consistent with a large unobserved fund "inherent stance" that cannot be explained by observable fund or event characteristics. In particular, we document a positive correlation between the propensity for targeting by activists and pro-activist voting by mutual funds, based both on observables and unobservables. This finding suggests that a relatively pro-activist shareholder base is a key factor driving activists' selection of targets.

Keywords: Mutual fund voting, Proxy contest, Selective targeting, Investor stance

JEL Classification: G23, G3

Suggested Citation

Brav, Alon and Jiang, Wei and Li, Tao and Pinnington, James, Picking Friends Before Picking (Proxy) Fights: How Mutual Fund Voting Shapes Proxy Contests (March 1, 2018). Columbia Business School Research Paper No. 18-16, Available at SSRN: https://ssrn.com/abstract=3101473 or http://dx.doi.org/10.2139/ssrn.3101473

Alon Brav

Duke University - Fuqua School of Business ( email )

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European Corporate Governance Institute (ECGI) ( email )

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National Bureau of Economic Research (NBER) ( email )

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Wei Jiang

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
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(212) 854-5553 (Phone)

ECGI ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
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Tao Li (Contact Author)

University of Florida - Department of Finance, Insurance and Real Estate ( email )

Warrington College of Business
Gainesville, FL 32611
United States

HOME PAGE: http://warrington.ufl.edu/contact/profile.asp?WEBID=7628

James Pinnington

Duke University- Fuqua School of Business ( email )

Durham, NC
United States

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