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

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