Capital gains lock-in and governance choices |
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Authors: | Stephen G Dimmock William C Gerken Zoran Ivković Scott J Weisbenner |
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Institution: | 1. Nanyang Technological University, 50 Nanyang Avenue, Singapore 639798, Singapore;2. University of Kentucky, 335H Gatton Building, Lexington, KY 40506, United States;3. Michigan State University, 315 Eppley Center, East Lansing, MI 48824, United States;4. University of Illinois, 515 East Gregory Drive, Champaign, IL 61820, United States |
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Abstract: | Differences in accrued gains and investors’ tax-sensitivity induce variation in a capital gains lock-in effect across mutual funds even for the same stock at the same time. Exploiting this variation, we show this effect influences funds’ governance decisions: higher capital gains decrease the likelihood a fund exits prior to contentious votes and increase the likelihood a fund votes against management. Consistent with tax motivation, these findings are concentrated among funds with tax-sensitive investors. Further, high aggregate capital gains across funds holding a stock predict a higher likelihood management loses a vote and a lower likelihood a contentious vote is proposed. |
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Keywords: | Mutual fund Proxy voting Corporate governance Capital-gains tax Lock-in effect G34 G23 H20 |
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