Picking Friends Before Picking (Proxy) Fights : How Mutual Fund Voting Shapes Proxy Contests

This is the first comprehensive study of mutual fund voting in proxy contests. Mutual funds tend to vote for dissident nominees at firms with weak operating and financial performance, and when dissidents are hedge funds. Notably, passive funds are more likely to support incumbent management than active funds. We find evidence of a positive selection effect: dissidents are more likely to initiate contests and proceed to voting when shareholders are expected to be more supportive based on both observables and unobservables. Our study demonstrates the pivotal role that institutional investors play in shaping the initiation and outcomes of proxy contests