On the role of institutional investors in corporate governance: Evidence from voting of mutual funds in Israel

Abstract

This chapter investigates voting decisions by mutual funds in a variety of management-sponsored proposals in Israel. Our main findings are that mutual fund managers tend to vote with management and oppose only about 30 percent of all potentially harmful proposals. Larger equity holdings by the fund manager and better prior performance by the firm are found to be negatively associated with the odds of voting against management. Also, mutual funds managed by banks are found to exhibit better monitoring than mutual funds managed by private investment companies. We find that bank fund managers are more likely to vote against management than other mutual fund managers. We further find that non-bank funds tend to increase equity holding following the meeting regardless of their vote, whereas bank funds tend to follow the “Wall Street Rule” and reduce their equity holdings after voting against management.

Citation

Amzaleg, Y., Ben-Zion, U. and Rosenfeld, A. (2009), "On the role of institutional investors in corporate governance: Evidence from voting of mutual funds in Israel", Hirschey, M., John, K. and Makhija, A.K. (Ed.) Corporate Governance and Firm Performance (Advances in Financial Economics, Vol. 13), Emerald Group Publishing Limited, Leeds, pp. 197-215. https://doi.org/10.1108/S1569-3732(2009)0000013010