Picking Friends Before Picking (Proxy) Fights: How Mutual Fund Voting Shapes Proxy Contests

Award Winner: 
Winner of the 2020 Aberdeen Standard Investments Finance Prize (Best paper in the Finance Working Paper series)

Picking Friends Before Picking (Proxy) Fights: How Mutual Fund Voting Shapes Proxy Contests

Alon Brav, Wei Jiang, Tao Li, James Pinnington

Series number :

Serial Number: 
601/2019

Date posted :

March 13 2019

Last revised :

June 14 2021
SSRN Share

Keywords

  • Mutual fund voting • 
  • proxy contest • 
  • Selective targeting • 
  • Investor stance

This paper provides the first comprehensive study of mutual fund voting in proxy contests. Funds tend to vote against incumbent management at firms with weak operating and financial performance, and in favor of dissidents with credible track records. Passive funds are active monitors although they are more supportive of incumbent management than active funds.

We document a positive selection effect: dissidents are more likely to initiate contests and proceed to voting when shareholders are expected to be more supportive based on observable and unobservable event characteristics as well as inherent pro-activist investor stance. Overall, institutional investors play a pivotal role in shaping the initiation and outcomes of proxy contests

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Authors

Dr
Real name:
Tao Li
University of Warwick
Mr.
Real name:
James Pinnington
Duke University- Fuqua School of Business