Bonds Lie in the Portfolio of the Beholder: Do Bonds Affect Equity Monitoring?

Abstract

Institutional investors conduct more governance research and are less likely to follow proxy advisor vote recommendations when a company’s bonds comprise a larger share of their assets. Bond holdings of companies with low ESG scores and where the fixed-income fund manager is more likely to be attentive and influence their institutions’ voting decisions drive these findings. The findings do not concentrate on companies or shareholder proposals where creditor-shareholder conflicts are likely. Overall, the findings suggest that corporate bond holdings influence how actively institutions monitor their equity positions and contribute to institutions’ overall incentive to be engaged stewards.

Keywords: bonds, governance, institutional investors, attention, voting

JEL Classification: G23, G30, G32, G34, K22