Mutual Fund Disagreement and Firm Value: Passive vs. Active Voice

85 Pages Posted: 23 Aug 2021 Last revised: 31 Mar 2022

See all articles by Jan Bena

Jan Bena

University of British Columbia - Sauder School of Business

Iris Wang

University of British Columbia (UBC) - Sauder School of Business

Date Written: August 19, 2021

Abstract

We develop a novel measure of disagreement in voice between active and passive mutual funds using their proxy votes that captures shareholder conflicts in public firms and examine the consequences of the disagreement for firm value. We show that the disagreement in voice between passive and active mutual funds leads to an economically large decrease in firm value when the vote outcome of a proposal is not perfectly anticipated. Our evidence suggests that the firm value loss we document is likely due to conflicting incentives between the two groups of mutual funds, instead of their differences of opinions about the quality of a proposal. Using Federal Open Market Committee announcements with press conferences as events that create scope for investors to make informed votes and interpret news differently for individual firms, we show that the value-destroying effect of the disagreement in voice due to conflicting incentives is causal. In contrast, when the outcome of a proposal is not anticipated, we show that the presence of the disagreement in voice marginally increases firm value. We provide evidence consistent with such disagreement being a form of shareholder monitoring that challenges management and it is interpreted in a positive way by the financial market participants.

Keywords: Corporate governance, Voting, Disagreement

JEL Classification: G14, G23, G34

Suggested Citation

Bena, Jan and Wang, Iris, Mutual Fund Disagreement and Firm Value: Passive vs. Active Voice (August 19, 2021). Available at SSRN: https://ssrn.com/abstract=3908230 or http://dx.doi.org/10.2139/ssrn.3908230

Jan Bena (Contact Author)

University of British Columbia - Sauder School of Business ( email )

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Vancouver, BC V6T 1Z2
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HOME PAGE: http://www.janbena.com

Iris Wang

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada

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