Capital gains lock-in and governance choices

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

Research output: Contribution to journalArticlepeer-review

18 Scopus citations

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

Bibliographical note

Funding Information:
We thank Renée Adams, Daniel Bergstresser, Jonathan Brogaard, Diane Del Guercio, Alex Edmans, Slava Fos, Huasheng Gao, Jiekun Huang, Jun-Koo Kang, Charles Kahn, Wei-Lin Liu, Angie Low, Michelle Lowry, Felix Meschke, Angela Morgan, Stewart Myers, Kasper Nielsen, Francisco Perez-Gonzalez, Hyeongsop Shim, Yuehua Tang, Bastian von Beschwitz, Jack Wolf, Fei Xie, Hanjiang Zhang, Lei Zhang, seminar participants at Clemson University, Hong Kong University of Science and Technology, Nanyang Technological University, Shanghai Advanced Institute of Finance, and the University of Saskatchewan, and conference participants at the 2013 AIM Investment Center Conference on Institutional Investment, 2015 Asian Bureau of Finance and Economic Research, 2014 American Finance Association, 2014 Conference on Asia-Pacific Financial Markets, 2014 European Finance Association, 2014 Finance Down Under, 2014 Financial Intermediation Research Society, and 2013 Singapore Finance Symposium. Dimmock gratefully acknowledges the financial support from the Singapore Ministry of Education Tier 1 Research Fund (Reference #: RG65/14). The findings and conclusions expressed are solely those of the authors and do not represent the views of the NBER.

Funding Information:
We thank Renée Adams, Daniel Bergstresser, Jonathan Brogaard, Diane Del Guercio, Alex Edmans, Slava Fos, Huasheng Gao, Jiekun Huang, Jun-Koo Kang, Charles Kahn, Wei-Lin Liu, Angie Low, Michelle Lowry, Felix Meschke, Angela Morgan, Stewart Myers, Kasper Nielsen, Francisco Perez-Gonzalez, Hyeongsop Shim, Yuehua Tang, Bastian von Beschwitz, Jack Wolf, Fei Xie, Hanjiang Zhang, Lei Zhang, seminar participants at Clemson University, Hong Kong University of Science and Technology, Nanyang Technological University, Shanghai Advanced Institute of Finance, and the University of Saskatchewan, and conference participants at the 2013 AIM Investment Center Conference on Institutional Investment, 2015 Asian Bureau of Finance and Economic Research, 2014 American Finance Association, 2014 Conference on Asia-Pacific Financial Markets, 2014 European Finance Association, 2014 Finance Down Under, 2014 Financial Intermediation Research Society, and 2013 Singapore Finance Symposium. Dimmock gratefully acknowledges the financial support from the Singapore Ministry of Education Tier 1 Research Fund (Reference #: RG65/14 ). The findings and conclusions expressed are solely those of the authors and do not represent the views of the NBER.

Publisher Copyright:
© 2017 Elsevier B.V.

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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