Ties that Bind: How Business Connections Affect Mutual Fund Activism

Ties that Bind: How Business Connections Affect Mutual Fund Activism

Dragana Cvijanović, Amil Dasgupta, Konstantinos Zachariadis

Series number :

Serial Number: 
438/2014

Date posted :

September 01 2014

Last revised :

September 24 2014
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Keywords

  • mutual funds • 
  • Activism • 
  • business ties • 
  • proxy vote disclosure

We investigate whether business ties with portfolio firms influence mutual funds? proxy voting using a comprehensive dataset spanning 2003 to 2011. In contrast to the prior literature, we find that ties significantly influence voting at the level of individual proposals after controlling for unobserved heterogeneity across firms, funds, and time, and for ISS recommendations and holdings.

The effect is strongest for highly contested proposals where votes are critical. The prominent 2006 class-action lawsuits against 401(K) sponsors and providers affected the voting of fund families differently depending on whether they were sued, suggesting a link between investor attention and corporate governance.

Authors

Real name: 
Dragana Cvijanović
Professor
Real name:
Konstantinos Zachariadis
School of Economics and Finance, Queen Mary University of London