Are Passive Investors Also Passive Voters? Evidence From Securities Lending by Mutual Funds

2021 FMA US Conference, 2021 Conference on Asia-Pacific Financial Markets (CAPM)

53 Pages Posted: 27 Feb 2021 Last revised: 11 Apr 2022

See all articles by Jing Xie

Jing Xie

Hong Kong Polytechnic University - School of Accounting and Finance

Date Written: February 28, 2022

Abstract

I find that mutual funds that lend securities are less likely to vote in the shareholder meetings of their portfolio firms using hand-collected data. The negative effect of security lending on fund voting almost disappears during the 2008 short sale ban period. The negative effect is weaker if a fund holds a larger stake in the stock, especially poorly performing stocks, or if other funds in the same fund family are active voters. Overall, mutual funds view security lending income as an opportunistic cost of monitoring and become less willing to monitor a firm as the cost increases.

Keywords: Securities lending; proxy voting; corporate governance; mutual funds; short selling

JEL Classification: G11; G23; G34

Suggested Citation

Xie, Jing, Are Passive Investors Also Passive Voters? Evidence From Securities Lending by Mutual Funds (February 28, 2022). 2021 FMA US Conference, 2021 Conference on Asia-Pacific Financial Markets (CAPM), Available at SSRN: https://ssrn.com/abstract=3754346 or http://dx.doi.org/10.2139/ssrn.3754346

Jing Xie (Contact Author)

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom
Kowloon
Hong Kong

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