The Market for Record-Date Ownership
37 Pages Posted: 20 Mar 2002
Date Written: July 4, 2002
Abstract
A share's ownership of record can trade separately from its beneficial ownership, through equity loans. In a year of transactions by a major lender, we analyze the market for ownership of record on dates when this ownership is important: the record dates of votes, when loans transfer votes, and of distributions, when loans determine the direct recipient of the distributions. On voting record dates, the lender's loan volume is high relative to surrounding days, particularly so for proposals related to lagging firms and of those, especially the proposals with close votes. Loan volume associates with greater support for shareholder proposals, and weaker support for management proposals. We also find substantial lending on dividend record dates of firms with reinvestment discounts and loan pricing that is low but increasing with the implied profit. On the record dates of Canadian firms' dividends we find that U.S. investors subject to withholding can reclaim 95% of the marginal unit of dividend yield using equity loans. We also find that, consistent with the Canadian dividend tax credit, the stock market capitalizes this marginal unit at more than its full cash value. For the cross section of Canadian firms these findings predict, and portfolio data confirm, that dividends reduce investment by U.S., relative to Canadian, institutions.
Note: Previously titled The Market for Legal Ownership
Keywords: Equity Lending, Shareholder Proposals, Dividend Arbitrage
JEL Classification: G35, G34, G15
Suggested Citation: Suggested Citation
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