ABSTRACT.

We show that a parsimonious spatial model with two dimensions can explain the bulk of mutual fund voting. We estimate the model using a comprehensive dataset of the 5,332,353 votes cast on 33,262 proposals from 3,844 portfolio companies from 2010 to 2015 by 3,617 mutual funds that in total hold almost 80% of mutual fund industry assets. The two dimensions of funds’ corporate governance preferences reflect the role of the two leading proxy advisors. Mutual funds are clustered into three ‘parties’—the Managerialist Party, the Shareholder Intervention Party, and the Shareholder Veto Party—that follow distinctive philosophies of corporate governance and shareholders’ role. We use our methodology in turn to construct measures of the individual distributions of preferences of public companies’ shareholder bases. Our preference measures for mutual funds and for public companies’ shareholder bases generate a range of insights about the broader system of corporate governance.