Securities Lending Around Proxies: Is the Increase in Lending Due to Proxy Abuse, or a Result of Dividends?

Abstract

The notion of empty voting, or borrowing shares of stock in order to vote without an equivalent economic interest, has captured the attention of both the financial press and financial researchers. We investigate the securities lending market around proxy record dates for evidence of proxy abuse. We find that the significance of share capture at the proxy has diminished both from an economic and statistical standpoint. In fact, after controlling for dividend record dates (when more stock lending activity occurs), incremental equity lending activity at the proxy is indistinguishable from zero. In addition, contrary to prior research, we find evidence that lending agents have begun to increase loan fees on proxy record dates, potentially dampening equity lending activity.

Keywords: Short Lending, Short Selling, Dividends

JEL Classification: G14, G19