Individual Investor Ideology

Abstract

We conduct the first analysis of individual investor ideology by examining their votes as shareholders. Following Bolton et al’s (2021) and Bubb and Catan’s (2021) work on mutual fund ideology, we conduct a dimension reduction analysis to ascertain the main dimensions on which individual investors divide and disagree. Unlike mutual funds, the individual investor’s most important dimension, by far, is her sentiment towards management. We show that individual investors display a strong consistency in their voting with respect to management, both within and across proposal types. For mutual funds, the identity of the fund and the identity of the proposal are both strong predictors of votes, consistent with views towards management and proposal quality both playing a role. For individuals, views towards management dominate. In fact, for shareholder-sponsored proposals, most of the variation in voting results across firms is explained by differences in the composition of firms’ voters—which is to say, how ideologically sympathetic one’s shareholders are to management. Perhaps unsurprisingly, individual investor ideology is strongly correlated with their ideology in political voting. Perhaps more surprisingly, individual investors do not appear to strongly distinguish between social responsibility and governance proposals, and their ideological in political voting is nearly as strongly predictive of the latter as the former. That individuals vote consistently, and that sentiment towards management is the most important dimension determining their vote, leads to counterintuitive consequences. When individuals do change their stance towards management between votes, it is often due to the firm’s recent stock price performance. This is true even in unusual contexts: for example, weak stock performance is correlated with greater individual support even for shareholder environment and social proposals. In fact, even on target company merger approvals, the stock performance prior to the merger announcement is a strong, significant positive predictor of individual votes in favor of the merger. These findings appear consistent with individual investors voting with or against management’s recommendations based not on analysis of the individual proposal but on their view of management.