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

Abstract

I propose a novel identification strategy to examine whether “passive” index funds participate in monitoring. Specifically, I examine how index funds vote their proxies on firms in its index that their family does not hold in its actively managed funds. For a given proxy proposal at a given point in time, I find that an index fund is more likely to oppose management on shares its family does not hold in its active funds than on shares its family does hold in its active funds. I further demonstrate that index fund governance has positive effects on the probability a proposal passes and on shareholder value.

Keywords: Index funds, governance, proxy voting

JEL Classification: G23, G30, G34