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

74 Pages Posted: 23 Aug 2021 Last revised: 16 Sep 2021

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

Using mutual funds’ proxy voting behavior, we construct a novel measure of shareholder disagreement between passive and active mutual funds. To create the measure, we use mutual funds’ voting decisions to capture the difference in “approval of management” between passive and active funds. We find that the disagreement among the two groups destroys firm value when the vote outcome of a proposal is not perfectly anticipated—viable. Using Federal Open Market Committee announcements with press conferences as events that create scope for investors to interpret news differently for individual firms, we show that such value-destroying effect is causal. When proposals are not viable, the presence of disagreement increases firm value. We show evidence consistent with such disagreement being a form of shareholder engagement that 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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+1 604 822 8490 (Phone)

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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