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Do large registered investment funds undermine shareholder activism? Evidence from hedge fund proposals

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  • Loureiro, Gilberto
  • Mendonça, Cesar

Abstract

We examine the voting behavior of Registered Investment Funds (Mutual Funds, ETFs and Close-end Funds) on Hedge Funds proposals, a common vehicle of value-driven shareholder activism. We compare the support rates of Registered Funds versus other voting shareholders on different types of proposals set up for voting at shareholders meetings and explore fund-level characteristics that may explain the variation in support rates. Our results show that Registered Funds support rates on Hedge Fund proposals vary depending on the proposal category. In general, the support rates of Registered Funds are about 4 percentage points lower compared to other investors. However, that difference rises to 10 p.p. for proposals that are more confrontational to the incumbent management of the target company. Interestingly, the average lower support rates of Registered Funds are driven by the ten largest funds. On the contrary, Registered Funds from smaller parent groups tend to be more supportive of Hedge Fund activism. We document a 18 p.p. reduction in the probability of favorable votes on Hedge Fund proposals by the largest Registered Funds compared to smaller funds. Our results suggest that the growing ownership in public companies by large Registered Funds reduces the overall support of shareholder activism through Hedge Fund proposals.

Suggested Citation

  • Loureiro, Gilberto & Mendonça, Cesar, 2024. "Do large registered investment funds undermine shareholder activism? Evidence from hedge fund proposals," Journal of Banking & Finance, Elsevier, vol. 162(C).
    • Handle: RePEc:eee:jbfina:v:162:y:2024:i:c:s0378426624000773
    DOI: 10.1016/j.jbankfin.2024.107157
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    Keywords

    Shareholder activism; Hedge funds; Shareholder voting; Corporate governance; Institutional investors; Conflicts of interest;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other

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