Conflict of interest and proxy voting by institutional investors |
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| Institution: | 1. Simon Fraser University, Burnaby, BC, Canada;2. University of California, Riverside, CA 92521, United States;3. State University of New York at Albany, NY 12222, United States;1. Keck Graduate Institute, Claremont Colleges, 535 Watson Drive, Claremont, CA 91711, United States of America;2. The University of Texas at Dallas, JSOM 14.502, 800 West Campbell Road, Richardson, TX 75080-3021, United States of America;3. Sabanci University, Orta Mahalle Universite Caddesi No: 27, 34956, Tuzla/Istanbul, Turkey;4. University of Memphis, 3675 Central Ave, FAB442, Memphis, TN 38152, United States of America;1. Faculty of Business and Economics, University of Melbourne, Melbourne, VIC 3010, Australia;2. Monash Business School, Monash University, Melbourne, VIC 3145, Australia |
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| Abstract: | Political pressures can bias public pension funds (PPFs) toward activist shareholders. The pension business ties mutual fund families (MFFs) have with portfolio firms can bias them toward firm management. We examine how these contrasting conflicts of interest affect institutional investors' proxy voting behavior and show PPFs (MFFs) are considerably more supportive of activist shareholders (firm management) in voting, even if doing so may harm investment value. The biases are more pronounced when incentive conflicts are stronger. PPFs support shareholder (management) proposals more (less) when Democrats gain more power in the fund's home state. Conflicted PPFs are particularly active in supporting value reducing shareholder proposals. |
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