Title: Essays in proxy voting and human capital investment
Description: Shareholder voting is one of the key mechanisms through which shareholders can affect the policy of a corporation. Through voting, shareholders elect directors, decide on matters of change of control, amend corporations' bylaws, and pass non-binding shareholder resolutions. The first two chapters, written jointly with Michael Ostrovsky, empirically examine two distinct types of shareholder votes. In Chapter 1, we examine the strategic behavior of mutual funds when they vote in board of director elections in their portfolio company. The board of directors plays a central role in corporate governance: it appoints and monitors top management of a company. A board also approves mergers, acquisitions, and other major firm policies. Therefore the right to vote in board of director elections is one of the most significant. Despite its importance, voting in the elections of corporate boards of directors remains relatively unexplored in the empirical literature. We construct a comprehensive dataset of 3,204,890 mutual fund votes in director elections that took place between July 2003 and June 2005. We find substantial systematic heterogeneity in fund voting patterns: some mutual funds are management friendly, and others are less so. We construct and estimate a model of voting in which mutual funds impose externalities on each other: the cost of opposing management decreases when other funds oppose it as well. We exploit fund heterogeneity to overcome the endogeneity problem induced by unobserved firm quality. We estimate all parameters in the voting model and show that strategic interaction between funds is economically and statistically significant. We then construct counterfactuals to compute the equilibrium distribution of votes under alternative specifications of strategic externalities.

We then construct counterfactuals to compute the equilibrium distribution of votes under alternative specifications of strategic externalities. We use the counterfactuals to show that implementing confidential voting in board of director elections has potentially large consequences on the equilibrium number of funds withholding their votes from directors. In Chapter 2 we focus on mutual fund voting in mergers of their portfolio companies. In the first part of the chapter we show that institutional shareholders of acquiring companies on average do not lose money around public merger announcements. This is in contrast to the previous literature, which has found significant negative returns to acquiring companies' shares around the announcements. The difference in findings is due to the fact that institutional shareholders of acquiring companies also hold substantial stakes in the targets, and make up for the losses from the former with the gains from the latter. Depending on their holdings in the target, acquirer shareholders may realize different returns from the same merger, some losing money and others gaining. Using a novel dataset we show that this conflict of interest is reflected in the mutual fund-voting behavior: in mergers with negative acquirer announcement returns, crossowners are more likely to vote for the merger.

In the last chapter, I develop a model in which workers can undertake specific human capital investments in the firm and in the manager employed by the firm. If the manager leaves the firm, a worker has to decide whether to join her in the new firm or stay in the old firm. In case of managerial turnover, the worker will be able to productively employ only one type of her human capital; the other serves as an outside option when bargaining with the firm she decides to work for. Using this dynamic, I am able to generate new testable predictions on workers' wage and productivity changes as a function of managerial turnover. I also derive results on turnover and firm stability as a function of team size and manager tenure. For example, I show that managerial turnover can cause a decrease in workers' productivity and an increase in their compensation; that exogenously increasing the probability of managerial turnover may motivate workers to invest more in specific human capital, and that increasing the probability may be welfare improving even if turnover itself is not. I also predict that workers in firms with larger teams and managers with higher tenure experience smaller wage changes after managerial turnover.