Mutual Fund Disagreement and Firm Value: Passive vs. Active Voice
74 Pages Posted: 23 Aug 2021 Last revised: 16 Sep 2021
Date Written: August 19, 2021
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: Suggested Citation