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

The Party Structure of Mutual Funds

“…Our overall findings are broadly consistent with a burgeoning literature on the voting behavior of institutional investors (e.g., Matvos and Ostrovsky, 2010;Choi, Fisch, andKahan, 2010, 2013;Ertimur, Ferri, and Oesch, 2013;Iliev and Lowry, 2014;Malenko and Shen, 2016;Appel, Gormley, and Keim, 2016;Brav, Jiang, and Li, 2017;Heath, Macciocchi, Michaeli, and Riggenberg, 2018). McCahery, Sautner, and Starks (2016) survey over 100 large institutional investors to shed light on investors' governance preferences.…”

“…Our finding that members of the Traditional Governance Party tend to be systematically more supportive of management nominees in contested elections echoes the resultsBrav, Jiang, and Li (2017) recover using a broader, hand-collected sample of fund votes in proxy contests.…”

Common-Ownership Concentration and Corporate Conduct

“…Relatedly, entry could occur not only by different firms, but also by corporate raiders or activist investors. Activists should be more willing to acquire target shares if they can expect support for their proposed strategic plans from existing shareholders; see Brav et al (2017) for evidence. Moreover, the activist's willingness to enter by buying shares should depend on the price at which she can acquire the necessary shares, whereas both the share price and the required vote share the raider has to acquire to be able to influence the firm depends on the entire industry's ownership structure.…”

Investor Ideology

“…We aggregate fund level voting information at the corresponding family level. According to Brav, Jiang, and Li (2017), a fund votes differently from other funds within the same family only 5.5% of the time.…”

“…More recently, the literature on proxy voting has explored other issues, in particular: i) whether mutual fund voting is driven by proxy advisers' recommendations, and if so why (Bethel and Gillan, 2002;Cai, Garner, and Walkling, 2009;Ertimur, Ferri, and Oesch, 2013;Larcker, McCall, and Ormazabal, 2014;Iliev and Lowry, 2015;Malenko and Shen, 2016;; ii) whether social networks-a common educational background between mutual fund managers and portfolio firms' CEOs-can explain mutual fund voting behavior (Butler and Gurun, 2012); whether index-investors are active in corporate governance (Appel, Gormley, and Keim, 2016); iv) whether cross-holdings in firms in the same industry affect the management-friendly stance of mutual funds (He, Huang, and Zhao, 2017), and; v) whether mutual funds vote in support of activist investor actions (He and Li, 2017;Brav, Jiang, and Li, 2017;Kedia, Starks, and Wang, 2017;and Jiang, Li and Mei, 2018). Finally, in a survey of mutual fund managers, McCahery, Sautner, and Starks (2016) find that voting against management is an important channel through which institutional investors exert their influence.…”