Abstract

http://ssrn.com/abstract=2023480
 
 

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The Role of Institutional Investors in Voting: Evidence from the Securities Lending Market


Reena Aggarwal


Georgetown University - Robert Emmett McDonough School of Business

Pedro A. C. Saffi


Cambridge Judge Business School - Finance

Jason Sturgess


DePaul University

July 7, 2012

AFA 2013 San Diego Meetings Paper

Abstract:     
We use a unique setting to examine the role of institutional investors in influencing firm-level corporate governance through proxy voting. Using a comprehensive proprietary data set from the equity lending market, we find that institutional investors restrict or call back their loaned shares prior to the record date in order to exercise their voting right. We find higher recall for firms with weaker corporate governance, weaker performance, higher institutional ownership, and when antitakeover or compensation proposals are on the ballot. The recall is most pronounced for contentious events such as proxy fights, mergers, negative changes in ISS’s recommendation, and close votes in the previous year. Examining the subsequent vote outcome, we find higher recall to be associated with fewer FOR votes for management and more FOR votes for shareholder proposals. The influence of proxy advisory firm ISS is also evident in voting outcome. If ISS opposes management then we find the higher recall to be associated with less FOR votes for the proposal. We find an increase in borrowing demand on the record date, however there is no relation between borrowing demand and voting outcome. Our results indicate both that corporate governance is important to institutional investors and that the proxy process is an important channel for corporate governance.

Number of Pages in PDF File: 59

Keywords: Proxy Voting, Securities Lending, Institutional Investors

JEL Classification: G32, G34, G38

working papers series


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Date posted: March 17, 2012 ; Last revised: July 31, 2012

Suggested Citation

Aggarwal, Reena and Saffi, Pedro A. C. and Sturgess, Jason, The Role of Institutional Investors in Voting: Evidence from the Securities Lending Market (July 7, 2012). AFA 2013 San Diego Meetings Paper. Available at SSRN: http://ssrn.com/abstract=2023480 or http://dx.doi.org/10.2139/ssrn.2023480

Contact Information

Reena Aggarwal (Contact Author)
Georgetown University - Robert Emmett McDonough School of Business ( email )
3700 O Street, NW
Washington, DC 20057
United States
202-687-3784 (Phone)
202-687-0798 (Fax)
HOME PAGE: http://explore.georgetown.edu/people/aggarwal/

Pedro A. C. Saffi
Cambridge Judge Business School - Finance ( email )
Trumpington Street
Cambridge, CB2 1AG
United Kingdom
Jason Sturgess
DePaul University ( email )
1 East Jackson Blvd.
Chicago, IL 60604
United States
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