(Re)call of Duty: Mutual Fund Securities Lending and Proxy Voting

Abstract

Taking advantage of a novel dataset on individual mutual funds' securities lending activities, we provide the first systematic evidence that mutual funds, especially ESG funds, recall loaned shares prior to voting record dates. Funds' recall-voting sensitivities differ based on their stated lending policies, ownership stakes in portfolio firms, and holding horizons, indicating heterogeneity in funds' perceived values of voting rights. Recalled shares are more likely to be voted against management proposals, and in favor of shareholder proposals and dissident slates in proxy contests. Recall-sensitive funds attract higher fund flows from institutional investors while foregoing a modest amount of lending revenue.

Keywords: JEL Classification: G23, G32, G34, G38 Securities lending, stock loan recalls, proxy voting, ESG funds, corporate governance

JEL Classification: G23, G32, G34, G38