Do mutual funds put their money where their mouth is? The case of expensing stock options.

摘要

This study investigates why some mutual fund managers vote against expensing the fair value of stock option grants, and explores whether mutual fund voting behavior is consistent with fund managers' revealed preferences as evidenced by their asset allocation decisions. Using a unique data set of over 4,000 mutual fund proxy votes on shareholder proposals to expense the fair value of stock option grants, univariate analysis finds that 53% of the shares owned by funds with a growth oriented investment style ("growth funds") are voted against expensing, compared to 31% of the shares owned by value funds. Multivariate analysis also finds that growth funds, or funds that are members of large fund families that are dominated by growth funds, are more likely to vote against expensing. In addition, I find that growth funds significantly reduce their investment in firms that are heavier stock option users after the issuance of SFAS 123R that requires the mandatory expensing of stock option grants. Further, I find that a fund's investment style is more important than how it votes in explaining this reduction in investment, suggesting that mutual fund managers do not always "put their money where their mouth is". This study contributes to the literature by finding evidence consistent with mutual fund voting behavior not always reflecting fund managers' "true" preferences, and with many mutual funds reducing their investment in firms that are heavier stock option users after the issuance of SFAS 123R.