Strategic Voting and Informational Rents: Evidence from Mutual Funds' Trades and Votes

We examine whether informed shareholders sometimes vote strategically against their private information to preserve its value for subsequent trading. Using data on mutual funds' trading and voting records, we identify this behavior by a fund's tendency to buy (sell) shares after losing (winning) a contentious vote. We find that post-vote net buying by strategic voters positively predicts subsequent abnormal stock returns, while the alignment of vote outcomes with their votes negatively predicts returns, suggesting that these funds possess and strategically vote against private information. Furthermore, higher firm ownership by strategic voters is associated with weaker subsequent operating performance. These findings highlight a key friction in shareholder democracy where the pursuit of trading profits can weaken corporate governance.