Do Institutional Investors Monitor their Large-Scale vs. Small-Scale Investments Differently? Evidence from the Say-On-Pay Vote

Abstract

We examine the relation between an institution’s stock ownership and its tendency to support corporate management through the “Say-on-Pay” (SOP) executive compensation vote. Institutional advisors are more likely to oppose management on the SOP vote for their small-scale investments, i.e., investments that comprise a small fraction of an institution’s aggregate stockholdings across its funds, or, alternatively, investments that comprise a small fraction of the total equity market capitalization of a corporation. We find evidence indicating that this voting pattern reflects an institutions’ overall sentiment for the stock, and is particularly prevalent when institutions have limited attention to monitor their investments.

Keywords: shareholder’s votes, say-on-pay, financial institutions, small shareholders

JEL Classification: G30