Political Affinity and Mutual Fund Voting

The authors document that mutual fund managers support politically aligned CEOs in proxy voting but engage in “signal jamming” to avoid potential backlash on infringing fiduciary duties. Fund managers support politically affine CEOs in contentious proposals when their support is most crucial, while strategically voting against them in non-contentious proposals. This behavior intensifies when the prevailing political power is of a different color, and in the presence of greater reputational concerns – supporting CEOs of firms with worse reputations. Ultimately, the distortion of voting incentives driven by political affinity reduces firm value.