Capital gains lock-in and governance choices

Stephen G. Dimmock, William C. Gerken, Zoran Ivković, Scott J. Weisbenner

Research output: Contribution to journalArticle

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.

Original languageEnglish (US)
Pages (from-to)113-135
Number of pages23
JournalJournal of Financial Economics
Volume127
DOIs
StatePublished - Jan 2018

Keywords

  • Capital-gains tax
  • Corporate governance
  • Lock-in effect
  • Mutual fund
  • Proxy voting

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management

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