Frenemies: how do financial firms vote on their own kind?

Keswani, A., Stolin, D. & Tran, A. (2016). Frenemies: how do financial firms vote on their own kind?. Management Science, doi: 10.1287/mnsc.2015.2314

[img]
Preview
Text - Accepted Version
Download (380kB) | Preview

Abstract

The financial sector is unique in being largely self-governed: the majority of financial firms’ shares are held by other financial institutions. This raises the possibility that monitoring of financial firms is especially undermined by conflicts of interest due to personal and professional links between these firms and their shareholders. To investigate this possibility, we scrutinize the aspect of the financial sector’s self-governance that is directly observable: mutual fund companies’ voting of their peers’ stock. We find that considerations specific to investee firms’ membership in the same industry as their investors do indeed impact voting. This impact is in the direction of supporting the investee’s management. We show that the own-industry effect reduces director efficacy and lowers firm value as a result. We extend our analysis to other financial companies and show that they also tend to vote more favorably when it comes to their peers. Our results suggest that peer support is a corrupting factor in the financial sector’s governance.

Item Type: Article
Uncontrolled Keywords: Information And Computing Sciences, Commerce, Management, Tourism And Services
Subjects: H Social Sciences > HG Finance
Divisions: Cass Business School > Faculty of Finance
URI: http://openaccess.city.ac.uk/id/eprint/12688

Actions (login required)

View Item View Item

Downloads

Downloads per month over past year

View more statistics