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

Abstract

This paper investigates the voting preferences of institutional investors using the unique setting of the securities lending market. Institutional investors restrict lendable supply and/or call back loaned shares prior to the proxy record date to exercise voting rights. Recall is higher for investors with greater incentives to monitor and exert governance, for firms with poor performance and weak governance, and for proposals where the returns to governance are likely to be higher such as those relating to corporate control. Loan demand and the borrowing fee also increase around the record date. In the subsequent vote outcome we find higher share recall to be associated with less support for management and more support for shareholder proposals. Our results indicate that institutions value their vote and use the proxy process as an important channel for affecting corporate governance.

Keywords: Proxy Voting, Securities Lending, Institutional Investors

JEL Classification: G32, G34, G38