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ich the funds manage pension plans with their votes to firms that do not manage. The authors argue that funds are no more likely to vote with management at client firms than at non-client firms. However, their data is based on the 2003 proxy season, which is the first year of mandated voting disclosures of mutual funds. Therefore, under close public scrutiny, mutual funds might have incentives to appear to not be subject to the influence of management. Likewise, Ashraf et al. (2010) investigates whether pension ties between mutual fund families and the firms affect how fund families vote on shareholder sponsored compensation proposals. The authors find that while fund families that have business ties to the firms they own are less likely to support shareholder proposals for executive compensation, there is also no difference in voting support of fund families with pension ties between client firms and non-client firms. Other than voting for management, mutual funds can support the management of the invested firm through trading. Cohen and Schmidt (2008) find that fund families acting as trustees systematically overweight their sponsor firms and even increase their holdings of a sponsor firm's stock when other mutual funds are engaged in aggregate selling of that sponsor firm's shares. Duan, Hotchkiss, and Jiao (2011) investigate whether pension business ties enable mutual funds to gain informational advantage in trading. The authors find that there is a positive relation between mutual fund trading and future performance of the portfolios firms with which funds have pension business ties.

In response to increasing concern that conflicts of interest allow mutual funds to vote for management regardless of the best interest of fund owners, on January 23, 2003, the SEC adopted new regulations: (1) the SEC required mutual funds to disclose actual voting results and (2) the SEC required mutual funds to publicly disclose a set of policies on how they will make decisions on proxy votes. The advocates of these rules expected that investors would be better able to monitor whether mutual funds engage in proxy voting in the interests of investors, preventing mutual funds from voting in support of management in order to facilitate other business relations with corporations whose shares they own. Cremer and Romano (2007) investigate the impact of the 2003 mutual fund voting disclosure regulation on voting outcomes by comparing voting outcomes of similar proposals sponsored at the same firms both before and after adoption of the regulation. The authors find no evidence that the rule decreases mutual funds' voting in support of management. Indeed, they show that mutual funds appear to have increased their support for management on executive equity incentive plans (EEIC) since the rule change.

Close votes

Listokin (2008) finds that there is a large difference between the frequency of management sponsored proposals passing with votes just above 50% and the frequency of proposals failing with votes just below 50%. As shown in Figure 1, there is a discontinuity in the distribution of voting outcomes in management-sponsored votes at the 50 percent level. This discontinuity suggests that management has information about the outcome of voting at a time when management can do something to change the outcome of votes. One possible explanation for this pattern could be that managers, in order to achieve success, encou