Do Mutual Funds Represent Individual Investors?

Abstract

In recent decades, investors have wielded their voting power to influence the direction of corporate policy. Although mutual funds have widely varying voting patterns and predictable ideological disagreements, little is known about whether their underlying investors have similar preferences. I provide the first systematic documentation comparing the voting preferences of individual investors in the United States to those of the mutual funds they invest in. I begin by presenting aggregate voting statistics, showing that, in the aggregate, individual investors vote similarly to mutual funds on SRI and management proposals. Since these numbers come from the subset of individual investors who vote, I adjust for sample selection bias on unobservable variables using access to additional voting methods, which provides variation in turnout that is unrelated to voting choices. I show (preliminarily) that sample selection bias does not appear to have a large aggregate impact. I next turn to the relationship between how individuals vote and how the funds they own vote. I find that although individual investors are highly ideological in their voting, there is generally no relationship between how a fund votes and the preferences of its individual investors. I explore the sources of this divergence, providing evidence for limited attention of individual investors.

Keywords: Shareholder Voting, Social Responsibility Proposals, ESG Funds

JEL Classification: G11, G18, G23, G34, G38