Individual Investor Ideology

Abstract

We conduct the first analysis of individual investor ideology by examining their votes as shareholders. Following Bolton et al’s (2020) and Bubb and Catan’s (2022) work on mutual fund ideology, we conduct a dimension reduction analysis to ascertain the main dimensions on which individual investors divide and disagree. Unlike mutual funds, individual investors have largely unidimensional preferences, with 56% of variation in voting explained by a dimension that can be interpreted as sentiment towards management. Further, we show that voter-specific ideology, not shared views of proposal quality, is the dominant driver of individual votes: individual votes vary primarily across individuals, not across proposals. In practice, this means that individual investors’ votes are highly consistent and predictable within-topic, across topic, and across category. We deepen our understanding with three additional findings. First, for environmental and social (ES) and governance proposals, the ideological composition of the firm’s individual investor base—and not any aspect of the firm or the proposal itself—drives most of the variation in the proposal’s voting performance. Second, individual voting ideology is closely correlated with individual political ideology. Third, to the extent individuals consider firm or proposal factors, such as recent stock performance, in their voting, they may not be using such factors as a gauge of proposal quality. Recent stock performance strongly predicts individual voting even on proposal types for which stock performance arguably provides no signal as to proposal quality. The results together describe a set of investors with strong ideologically preferences that communicate non-specifically through voting.