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Ties That Bind: How Business Connections Affect Mutual Fund Activism

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  • DRAGANA CVIJANOVIĆ
  • AMIL DASGUPTA
  • KONSTANTINOS E. ZACHARIADIS

Abstract

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 promanagement voting at the level of individual pairs of fund families and firms after controlling for Institutional Shareholder Services (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.

Suggested Citation

  • Dragana Cvijanović & Amil Dasgupta & Konstantinos E. Zachariadis, 2016. "Ties That Bind: How Business Connections Affect Mutual Fund Activism," Journal of Finance, American Finance Association, vol. 71(6), pages 2933-2966, December.
    • Handle: RePEc:bla:jfinan:v:71:y:2016:i:6:p:2933-2966
    DOI: 10.1111/jofi.12425
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    More about this item

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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