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Institutional Investors and Proxy Voting: The Impact of the 2003 Mutual Fund Voting Disclosure Regulation

  • Martijn Cremers
  • Roberta Romano
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    This paper examines the impact on shareholder voting of the mutual fund voting disclosure regulation adopted by the SEC in 2003, using a paired sample of proposals submitted before and after the rule change. We focus on how voting outcomes relate to institutional ownership and the voting behavior of mutual funds. While voting support for management has decreased over time, there is no evidence that mutual funds' support for management declined after the rule change, as expected by advocates of disclosure. In fact, in the context of management-sponsored proposals on executive equity incentive compensation plans, mutual funds appear to have increased their support for management after the rule change. We also find that this result is not due to changes in compensation plan features, nor that voting outcomes were plausibly related to broker voting, which was eliminated in a parallel 2003 stock exchange rule change. Finally, there is some evidence that firms with greater mutual fund ownership adopt a higher frequency of sponsoring executive equity incentive compensation plans, which could partly explain our findings.

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    File URL: http://icfpub.som.yale.edu/publications/2660
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    Paper provided by Yale School of Management in its series Yale School of Management Working Papers with number amz2660.

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    Date of creation: 01 Apr 2007
    Date of revision: 01 Jan 2008
    Handle: RePEc:ysm:somwrk:amz2660
    Contact details of provider: Web page: http://icf.som.yale.edu/

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    1. Thomas, Randall S. & Cotter, James F., 2007. "Shareholder proposals in the new millennium: Shareholder support, board response, and market reaction," Journal of Corporate Finance, Elsevier, vol. 13(2-3), pages 368-391, June.
    2. Paul Gompers & Joy Ishii & Andrew Metrick, 2003. "Corporate Governance And Equity Prices," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 107-155, February.
    3. Morgan, Angela & Poulsen, Annette & Wolf, Jack, 2006. "The evolution of shareholder voting for executive compensation schemes," Journal of Corporate Finance, Elsevier, vol. 12(4), pages 715-737, September.
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    5. Jennifer E. Bethel & Stuart L. Gillan, 2002. "The Impact of the Institutional and Regulatory Environment on Shareholder Voting," Financial Management, Financial Management Association, vol. 31(4), Winter.
    6. Pound, John, 1988. "Proxy contests and the efficiency of shareholder oversight," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 237-265, January.
    7. Yermack, David, 1996. "Higher market valuation of companies with a small board of directors," Journal of Financial Economics, Elsevier, vol. 40(2), pages 185-211, February.
    8. Gillan, Stuart L. & Starks, Laura T., 2000. "Corporate governance proposals and shareholder activism: the role of institutional investors," Journal of Financial Economics, Elsevier, vol. 57(2), pages 275-305, August.
    9. Brickley, James A. & Lease, Ronald C. & Smith, Clifford Jr., 1988. "Ownership structure and voting on antitakeover amendments," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 267-291, January.
    10. Davis, Gerald F. & Kim, E. Han, 2007. "Business ties and proxy voting by mutual funds," Journal of Financial Economics, Elsevier, vol. 85(2), pages 552-570, August.
    11. K.J. Martijn Cremers & Vinay B. Nair, 2003. "Governance Mechanisms and Equity Prices," Yale School of Management Working Papers ysm376, Yale School of Management.
    12. Lehn, Kenneth & Patro, Sukesh & Zhao, Mengxin, 2007. "Governance indexes and valuation: Which causes which?," Journal of Corporate Finance, Elsevier, vol. 13(5), pages 907-928, December.
    13. K. J. Martijn Cremers & Vinay B. Nair, 2005. "Governance Mechanisms and Equity Prices," Journal of Finance, American Finance Association, vol. 60(6), pages 2859-2894, December.
    14. Roberta Romano, 2001. "Less is More: Making Shareholder Activism a Valuable Mechanism of Corporate Governance," CeRP Working Papers 12, Center for Research on Pensions and Welfare Policies, Turin (Italy).
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