DP8587 Delegated Activism and Disclosure

Author(s): Amil Dasgupta, Konstantinos Zachariadis
Publication Date: October 2011
Keyword(s): Activist Investors, Corporate Governance, Delegated Portfolio Management, Mutual Funds
JEL(s): G0, G3
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=8587

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.