Konstantinos E. Zachariadis

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.

A Baseline Model of Price Formation in a Sequential Market

In a centralized market where information over the fundamental value of a traded asset is asymmetric and imperfect a basic question arises: how well the market price transmits and aggregates disperse information. We address this using the trading protocol of Glosten and Milgrom (1985) but in an environment where ex ante symmetric agents have interdependent valuations, and affiliated private information. This implies that traders are informationally equivalent, and that there are neither pure liquidity-driven traders nor pure speculators. We show several properties of the ask and bid prices, but most importantly we prove that both prices in the limit collapse to a single value (the limiting price) which reveals the fundamental value of the asset. Adverse selection, which is inherent in the model, does not impede the estimation problem in the sense that the rate of convergence to the limiting price is the same as that of a fully signal-revealing mechanism.

The Asymptotics of Price and Strategy in the Buyer's Bid Double Auction

The analysis of equilibrium in double auctions is complicated, with almost no closed-form examples and with formal results limited to bounds on bidding behavior. We consider the buyers bid double auction in a correlated, private values model. Sellers have the incentive to submit their costs as their asks while buyers strategically underbid. We determine (i) the asymptotic distribution of the equilibrium market price and (ii) the asymptotic limits of terms in the first order condition for a buyers selection of his bid. Part (i) reveals the properties of the strategically determined market price as an estimator of the rational expectations equilibrium price. Part (ii) provides a simple formula for a buyers bid that is shown numerically to closely approximate his equilibrium bid even in relatively small markets. This formula reveals how equilibrium varies with the numbers of buyers and sellers and the distribution of their values/costs.