Dragana Cvijanovic

Ties that Bind: How Business Connections Affect Mutual Fund Activism

We investigate how business ties with portfolio firms influence mutual funds’ proxy voting using a comprehensive dataset spanning 2003 to 2011. In sharp contrast to the prior literature, we show that the proxy voting of mutual funds is significantly influenced by their business ties with portfolio firms. Our result holds at the level of individual proposals after robustly controlling for unobserved heterogeneity across firms and fund families and over time as well as for the e?ects of ISS recommendations and fund family holdings. We also show that the influence of business ties on proxy voting is strongest for highly contested shareholder proposals where proxy votes are most relevant for firm value. Finally, we show that the prominent class action lawsuits of 2006 against 401(K) sponsors and providers had di?erential e?ects on the voting of di?erent fund families depending on whether they were sued, thus unearthing a potential link between investor attention and corporate governance.

Within-Bank Spillovers of Real Estate Shocks

By considering banks as portfolios of assets in different locations, we study the transmission of negative real estate shocks across bank’s business areas and geographical locations while controlling for local demand shocks and bank location–specific factors. Affected banks recognize capital losses and cut lending across the board indicating contagion across business lines and locations. They also roll over and fail to liquidate problematic loans, in addition to reducing their operational costs and depleting their liquidity. These results provide evidence of bank balance sheet transmission and amplification of real estate shocks.

When Pay for Luck is Pay for Action: CEO Compensation and Real Estate Prices

We use changes in real estate prices to study the sensitivity of CEO compensation to luck and to responses to luck. Pay for luck can be optimal when CEOs are expected to react to luck. To identify responses to luck we rely on the fact that accounting performance, unlike market performance, only reflects changes to real estate prices if the CEO responds to the real estate shocks. We show that CEO compensation is linked to responses to real estate luck, which can partially explain pay for luck.