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
SSRN Share

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 data set spanning 2003 to 2011. In contrast to prior literature, we find that business ties significantly influence pro-management voting at the level of individual pairs of fund families and firms after controlling for ISS recommendations and holdings.

The association is significant only for shareholder-sponsored proposals and stronger for those that pass or fail by relatively narrow margins. Our findings are consistent with a demand-driven model of biased voting in which company managers use existing business ties with funds to influence how they vote.

Published in

Published in: 
Publication Title: 
Journal of Finance
Description: 
Volume 71, Issue 6, December 2016, Pages 2933-2966

Authors

Real name: 
Dragana Cvijanović