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port the management of the invested firms through voting for management proposals. Since proxy voting is the primary forum through which shareholders participate in the governance of corporations, examining mutual funds' voting outcomes is one way to investigate the existence of mutual funds' conflicts of interest. Davis and Kim (2007), Ashraf, Jayaraman, and Ryan (2010), and Pengfei Ye (2008) provide evidence that mutual funds are more likely to vote for management regardless of the best interest of the investors due to the existence of conflicts of interest.

In this paper, I explore whether the pension business ties between mutual funds and their portfolio firms have an impact on mutual fund voting behavior. Through mapping mutual funds' pension business ties to their portfolio firms onto mutual funds' actual voting outcomes, I examine 61,336 voting decisions made by 3,130 mutual funds from 101 fund families for 172 management sponsored proposals and 129 shareholder sponsored proposals voted on at 257 firms over the sample period from June 2003 to December 2005. Using a probit model, I document a positive association between mutual fund voting and pension business ties. Analysis at the fund family level shows that fund families are more likely to vote for the ISS unfavorable management proposals and to vote against the ISS favorable shareholder proposals. The influence of pension ties to mutual fund voting becomes four times stronger when there is voting divergence among funds within the same families. However, there is no evidence that voting support of mutual funds is higher for the proposals voted at their clients' firms compared to non-client firms. At the individual fund level, a fund included as one of the investment options of the pension plans of a firm in which it invests is more likely to vote against the ISS favorable shareholder proposals.

The results of this study extend the findings of Ashraf et al. (2010) but are different in four aspects. First, to the extent that the marginal effect of the influence of business ties on mutual fund voting support for management is greater for close votes, the sample only includes votes in which the level of the voting support of the proposal is between 40% and 60%. Second, given the evidence of the impact of the Institutional Shareholder Services (ISS) advice on mutual fund voting support, I segregate the sample into the proposals recommended by the ISS and the proposals not recommended by ISS. Third, as I observe non-trivial divergence in fund votes within the same families for both management proposals and shareholder proposals, I look into whether the association between business ties and fund voting is stronger with the existence of divergence. Furthermore, the finding of divergence among fund votes drives me to analyze the data at the fund level.

Given the fact that the size of mutual funds has significantly grown and is expected to grow more in the future, the findings of this paper suggest that the policy makers should consider new rules in order to mitigate the concerns from conflicts of interest. For example, the Securities and Exchange Commission (SEC) should seriously review the recent petition from the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) proposing that the SEC require mutual funds to disclose pension business ties with the firms in which they invest.

The paper is organize