Capital Gains Lock-In and Governance Choices

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

Stephen G. Dimmock

Nanyang Technological University - Division of Finance

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)

Nanyang Technological University - Division of Finance ( email )

S3-B1B-76 Nanyang Avenue
Singapore, 639798
Singapore

William Christopher Gerken

University of Kentucky - Finance ( email )

College of Business & Economics
Lexington, KY 40506-0034
United States

Zoran Ivkovich

Michigan State University, Department of Finance ( email )

315 Eppley Center
East Lansing, MI 48824-1122
United States

Scott J. Weisbenner

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

340 Wohlers Hall, MC-706
1206 S. Sixth Street
Champaign, IL 61820
United States
217-333-0872 (Phone)
217-244-9867 (Fax)

HOME PAGE: http://business.illinois.edu/weisbenn/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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