GEOGRAPHICAL PROXIMITY AND PEER EFFECTS IN MUTUAL FUNDS PROXY VOTING

Abstract

This study examines whether geographical proximity facilitates coordinated voting by mutual funds. I construct a data set of 1,802,988 fund-vote observations in U.S. from 2003 to 2011 to analyze the proxy voting behavior of mutual funds in corporate elections. I find that geographical proximity among mutual fund managers is positively and significantly associated with coordinated voting. Moreover, the effect of geographical proximity on coordinated voting is more pronounced in firms with poor external governance and unfavorable prior performance. I further show that geographically concentrated mutual fund ownership is related to less affirmative support for the management, suggesting that geographic proximity play a significant role in facilitating disciplinary governance activities.