DP8587 | Delegated Activism and Disclosure

Publication Date

01/10/2011

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Abstract

Mutual funds are signi ficant blockholders in many corporations. Concerns that funds vote in a pro-management manner to garner lucrative pensions contracts led the SEC to mandate the disclosure of proxy votes. We present a model of mutual fund voting in the presence of potential business ties. We characterize the limits of delegated activism by mutual funds pre- and post-disclosure and show that disclosure is not a panacea: for some proposals disclosure hurts activism. The desirability of disclosure also depends on the distribution of business ties amongst mutual funds. We provide support for existing empirical findings and generate new testable implications.