57 Pages Posted: 10 Jul 2013 Last revised: 17 Nov 2016
Date Written: November 16, 2016
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: 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
By Alex Edmans