Fund Family Matters: How Index Funds Improve Corporate Governance
47 Pages Posted: 27 Mar 2020 Last revised: 15 Jul 2021
Date Written: March 19, 2020
I propose a novel mechanism that explains why index funds may have a beneficial effect on corporate governance: Increased index fund holdings provide a fund family with greater incentives to monitor management. Mutual fund families centralize voting decisions and may have incentives to monitor even when their individual index funds do not. Increased index fund holdings facilitate the coordination between funds from the same fund family and lead to fewer votes cast in support of the management by funds in the same family. My results demonstrate that when families offer index funds with active funds, the increasing size of index funds does not lead to less monitoring of the management.
Keywords: Corporate Governance, Index Funds, Proxy Voting
JEL Classification: D71, G23, G34
Suggested Citation: Suggested Citation