Capital Gains Lock-In and Governance Choices

57 Pages Posted: 10 Jul 2013 Last revised: 17 Nov 2016

See all articles by Stephen G. Dimmock

Stephen G. Dimmock

National University of Singapore; Asian Bureau of Finance and Economic Research (ABFER)

William Christopher Gerken

University of Kentucky - Finance

Zoran Ivkovich

Michigan State University, Department of Finance

Scott J. Weisbenner

University of Illinois at Urbana-Champaign - Department of Finance; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: November 16, 2016

Abstract

Differences in accrued gains and investors’ tax-sensitivity induce variation in a capital gains lock-in effect across mutual funds even for the same stock at the same time. Exploiting this variation, we show this effect influences funds’ governance decisions: higher capital gains decrease the likelihood a fund exits prior to contentious votes and increase the likelihood a fund votes against management. Consistent with tax motivation, these findings are concentrated among funds with tax-sensitive investors. Further, high aggregate capital gains across funds holding a stock predict a higher likelihood management loses a vote and a lower likelihood a contentious vote is proposed.

Keywords: Mutual fund, Proxy voting, Corporate governance, Capital-gains tax, Lock-in effect

JEL Classification: G34, G23, H20

Suggested Citation

Dimmock, Stephen G. and Gerken, William Christopher and Ivkovich, Zoran and Weisbenner, Scott J., Capital Gains Lock-In and Governance Choices (November 16, 2016). Available at SSRN: https://ssrn.com/abstract=2291827 or http://dx.doi.org/10.2139/ssrn.2291827

Stephen G. Dimmock (Contact Author)

National University of Singapore ( email )

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William Christopher Gerken

University of Kentucky - Finance ( email )

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Zoran Ivkovich

Michigan State University, Department of Finance ( email )

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United States

Scott J. Weisbenner

University of Illinois at Urbana-Champaign - Department of Finance ( email )

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National Bureau of Economic Research (NBER) ( email )

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