The Party Structure of Mutual Funds

The Party Structure of Mutual Funds

Ryan Bubb, Emiliano Catan

Series number :

Serial Number: 
560/2020

Date posted :

December 28 2020

Last revised :

December 28 2020
SSRN Share

Keywords

  • mutual funds • 
  • proxy voting • 
  • spatial models • 
  • Corporate governance

We investigate the structure of mutual funds’ corporate governance preferences as revealed by how they vote their shares in portfolio companies. We apply unsupervised learning tools from the machine learning literature to analyze a comprehensive dataset of mutual funds’ votes and find that a parsimonious two-dimensional model can explain the bulk of mutual fund voting.

The two dimensions capture competing visions of corporate governance and are closely related to the recommendations of the leading proxy advisors. Model-based cluster analysis shows that mutual funds are organized into three ‘parties’—the Traditional Governance Party, the Shareholder Reform Party, and the Shareholder Protest Party—that follow distinctive philosophies of corporate governance and shareholders’ role. Our preference measures for mutual funds generate a range of insights about the broader system of corporate governance.

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Authors

Professor
Real name:
Emiliano Catan
NYU Law School