Conflict of Interest and Proxy Voting by Institutional Investors
59 Pages Posted: 21 Sep 2018 Last revised: 17 May 2019
Date Written: May 2019
The pension business ties mutual funds have with portfolio firms can bias them toward firm management. Political pressures can bias public pension funds toward activist shareholders. This paper examines how these conflicts of interests affect institutional investors’ proxy voting behavior. We find that public pension funds (mutual funds) are considerably more supportive of activist shareholders (firm management) in voting, even if doing so may harm investment value. The biases are more pronounced when incentive conflicts are stronger. The results are not driven by proposals related to specific topics or filed by specific sponsors. Conflicted public pension funds are particularly active in supporting value reducing shareholder proposals.
Keywords: conflict of interest; institutional investors; proxy voting; corporate governance
JEL Classification: G23; G34
Suggested Citation: Suggested Citation