(Black)Rock the Vote: Index Funds and Opposition to Management

Abstract

I propose a novel approach to examine index fund governance. While index funds may lack traditional incentives to monitor, their families do not. To account for the organizational structure of a fund’s family, I examine how index funds vote their proxies at a firm conditional on whether their family concurrently holds that same firm its actively managed funds. I find index funds are more likely to oppose management on shares only present in the family’s index funds relative to shares held actively by its family. This implies the growth of indexing does not necessarily result in diminishing institutional monitoring.

Keywords: Index funds, governance, proxy voting

JEL Classification: G23, G30, G34