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Determinants and Consequences of Proxy Voting by Mutual Funds on Shareholder Proposals ∗

By Rasha Ashraf, Narayanan Jayaraman, Ajay Khorana, Jonathan Clarke, Haizheng Li, Suzanne Lee, Minqiang Li, Sris Chatterjee, Gautam Goswami, Christopher Blake, John Finnerty and An Yan


We investigate mutual funds ’ proxy voting records on shareholder proposals for the period July 1, 2003, to June 30, 2004. The data consist of the voting records of 433 mutual funds from 24 fund families. The final sample on shareholder proposals includes over 29,000 observations covering 528 firms. We investigate three main questions. First, we study the determinants of mutual funds ’ voting policies across firms. Next, we examine the incentive structure of mutual funds that could act as a motivational force for them to undertake an activist role in their proxy voting behavior. Last, we investigate the trading behavior of mutual funds after the release of voting records and investigate whether mutual funds engage in “Wall Street Walk”, that is sell off their shares when dissatisfied with firms ’ management. Our results indicate that mutual funds undertake a monitoring role for proposals that are likely to increase shareholders’ wealth and rights, in firms with weaker external monitoring mechanisms, and in firms with entrenched management. The level of insider voting rights and internal governance mechanism through block-holder ownership also influence funds ’ voting decisions. Moreover, mutual funds’ motivation to take on an activist role does not come from their ownership concentration, bu

Year: 2013
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