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Ties that Bind:How business connections affect mutual fund activism

Dragana Cvijanovic, Amil Dasgupta and Konstantinos Zachariadis

FMG Discussion Papers from Financial Markets Group

Abstract: We investigate how business ties with portfolio firms influence mutual funds’ proxy voting using a comprehensive dataset spanning 2003 to 2011. In sharp contrast to the prior literature, we show that the proxy voting of mutual funds is significantly influenced by their business ties with portfolio firms. Our result holds at the level of individual proposals after robustly controlling for unobserved heterogeneity across firms and fund families and over time as well as for the e?ects of ISS recommendations and fund family holdings. We also show that the influence of business ties on proxy voting is strongest for highly contested shareholder proposals where proxy votes are most relevant for firm value. Finally, we show that the prominent class action lawsuits of 2006 against 401(K) sponsors and providers had di?erential e?ects on the voting of di?erent fund families depending on whether they were sued, thus unearthing a potential link between investor attention and corporate governance.

Date: 2014
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http://www.lse.ac.uk/fmg/workingPapers/discussionPapers/fmgdps/DP731-final.pdf (application/pdf)

Related works:
Journal Article: Ties That Bind: How Business Connections Affect Mutual Fund Activism (2016) Downloads
Working Paper: Ties that bind: how business connections affect mutual fund activism (2016) Downloads
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