Do large registered investment funds undermine shareholder activism ? Evidence from hedge fund proposals

Loureiro, Gilberto R. and Mendonça, Cesar (2024) "Do Large Registered Investment Funds Undermine Shareholder Activism? Evidence from Hedge Fund Proposals." Journal of Banking and Finance.  http://dx.doi.org/10.2139/ssrn.4361663 ### Summary in English (150 words) This study examines the voting behavior of Registered Investment Funds (Mutual Funds, ETFs, and Closed-End Funds) on shareholder proposals, focusing on Hedge Fund proposals, a common vehicle for value-oriented shareholder activism. Using Proxy Insight data from 2010 to 2020, the findings show that Registered Funds support Hedge Fund proposals at lower rates—4 percentage points less than other investors, increasing to 10 points for proposals more contentious to company management. Overall support for Hedge Fund proposals is higher (39.5%) compared to non-hedge proposals (32.6%). The study reveals that the ten largest fund families significantly influence passive funds' voting behavior, reducing support for activist proposals by 18 percentage points on average. This suggests that the growing ownership concentration by large Registered Funds diminishes overall support for shareholder activism via Hedge Fund proposals. Consequently, Registered Funds, especially those controlled by major groups, may be less effective monitors, impacting corporate governance and shareholder value negatively.