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Delegated Activism and Disclosure

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  • Amil Dasgupta

    ()

  • Konstantinos Zachariadis

    ()

Abstract

Mutual funds hold large blocks of shares in many major corporations. Practitioners and regulators alike have been concerned that mutual funds use their proxy votes in a promanagement manner in order to garner lucrative pensions administration contracts, thus hindering shareholder value. Such concerns led the SEC to mandate the disclosure of mutual fund proxy votes starting in 2003. We present a simple model of mutual fund proxy voting in the presence of potential business ties. Our model generates clean predictions on how funds would vote both prior and subsequent to mandatory disclosure. We provide theoretical foundation for the limited activism of mutual funds and demonstrate that mandatory disclosure is not a panacea. We also show that the strategic interaction between multiple mutual fund blockholders of comparable size can generate counterintuitive non-monotone relationships with relevant empirical implications.

Suggested Citation

  • Amil Dasgupta & Konstantinos Zachariadis, 2011. "Delegated Activism and Disclosure," FMG Discussion Papers dp689, Financial Markets Group.
  • Handle: RePEc:fmg:fmgdps:dp689
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    File URL: http://www.lse.ac.uk/fmg/workingPapers/discussionPapers/DP689PWC27.pdf
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    1. Admati, Anat R & Pfleiderer, Paul & Zechner, Josef, 1994. "Large Shareholder Activism, Risk Sharing, and Financial Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 102(6), pages 1097-1130, December.
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