All Shareholder Votes Are Not Created Equal

Abstract:

We find that the identity of the shareholder matters as much as, if not more than, the number of shares they hold: firms are twice as responsive to the votes of active funds as to those of passive funds. We provide suggestive evidence that this discrepancy arises not because active funds are better informed, but because they pose a greater threat of future action. Despite the significantly larger holdings of Vanguard, BlackRock, and State Street – the so-called “Big Three” funds – their votes carry no more weight than those of an average active fund. These findings suggest that concerns over the influence of ever-larger index funds may be overstated.