Institution-Broker Relationship and Mutual Fund Proxy Voting

60 Pages Posted: 23 Nov 2020 Last revised: 17 Apr 2021

See all articles by Nitish Kumar

Nitish Kumar

University of Florida

Yuehua Tang

University of Florida - Department of Finance

Kelsey D. Wei

University of Texas at Dallas

Date Written: November 23, 2020

Abstract

We show that mutual funds are more likely to hold and significantly overweight stocks of their broker banks. Correspondingly, funds’ proxy voting is biased towards management of their brokers in contentious proposals. Such voting bias has a material impact on voting outcomes. In return, client mutual funds with greater portfolio overweighting and voting support receive larger allocations of underpriced IPOs from connected broker banks. Our study not only uncovers a new mechanism—being brokers’ friendly shareholders—through which the two parties maintain their quid pro quo relationships, it also raises a broader concern on shareholder monitoring of important financial institutions.

Keywords: Mutual funds, brokerage firms, investment banks, proxy voting, IPO allocations

JEL Classification: G11, G23, G24, G30

Suggested Citation

Kumar, Nitish and Tang, Yuehua and Wei, Kelsey D., Institution-Broker Relationship and Mutual Fund Proxy Voting (November 23, 2020). Available at SSRN: https://ssrn.com/abstract= or http://dx.doi.org/10.2139/ssrn.3711791

Nitish Kumar

University of Florida ( email )

Gainesville, FL 32611
United States

Yuehua Tang (Contact Author)

University of Florida - Department of Finance ( email )

P.O. Box 117168
Gainesville, FL 32611
United States

HOME PAGE: http://sites.google.com/site/yuehuatang

Kelsey D. Wei

University of Texas at Dallas ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States
9728835978 (Phone)

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