Working Paper: NBER ID: w31636
Authors: Andrey Malenko; Nadya Malenko
Abstract: Traditionally, fund managers cast votes on behalf of investors whose capital they manage. Recently, this system has come under intense debate given the growing concentration of voting power among a few asset managers and disagreements over environmental and social issues. Major fund managers now offer their investors a choice: delegate their votes to the fund or cast votes themselves ("voting choice"). This paper develops a theory of delegation of voting rights and studies the implications of voting choice for investor welfare. If the reason for offering voting choice is that investors have different preferences, then investors may retain their voting rights excessively, inefficiently prioritizing their private preferences over information. As a result, investors on aggregate are not always better off if voting choice is offered to them. In contrast, if the reason for offering voting choice is that investors have information about the proposal that the fund manager does not have, then voting choice is generally efficient, increasing investor welfare. However, if information collection is costly, voting choice may lead to coordination failure, resulting in less informed voting outcomes.
Keywords: voting rights; investor welfare; delegation; corporate governance
JEL Codes: D74; G34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Retention of voting rights due to personal preferences (K16) | Inefficient outcomes (D61) |
| Investors possess information (D83) | Enhanced investor welfare (G19) |
| Costly information collection (D82) | Uninformed voting outcomes (D72) |