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

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. We show that the disagreement in voice between passive and active mutual funds destroys firm value and suggest that the firm value loss is due to conflicting incentives between the two groups of mutual funds. 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 such value-destroying effect of disagreement is likely causal.

Keywords: Corporate governance, Voting, Disagreement

JEL Classification: G14, G23, G34