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

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

53 Pages Posted: 27 Feb 2021 Last revised: 17 Dec 2022

See all articles by Jing Xie

Jing Xie

University of Macau, Faculty of Business Administration, Department of Finance and Business Economics

Date Written: February 28, 2022

Abstract

Using hand-collected data on mutual funds’ securities lending activities, I find that funds that have benefited from securities lending are less likely to participate in proxy voting of their portfolio firms in the future. The negative effect of security lending on fund voting participation almost disappears during the 2008 short sale ban period when the lending business is forbidden by regulation. The negative effect is weaker if other funds in the same fund family are active voters, or if a fund holds a larger stake in the stock, especially poorly performing stocks. 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 (CAFM), Available at SSRN: https://ssrn.com/abstract=3754346 or http://dx.doi.org/10.2139/ssrn.3754346

Jing Xie (Contact Author)

University of Macau, Faculty of Business Administration, Department of Finance and Business Economics ( email )

E22-4064, FBA building
Macau
Macau, 000000
China
+853 88224639 (Phone)

HOME PAGE: http://fba.um.edu.mo/faculty/jingxie/

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