In the first essay, we study mutual funds' voting on compensation-related proposals initiated by corporate management. Compared with proposals on other topics, proposals on compensation issues are more likely to be challenged by mutual funds. Consistent with active institutional influence, mutual funds are more likely to vote against management at portfolio firms that make more excess CEO pay or depict other symptoms of poor governance such as bad performance and CEO entrenchment. Both active and passive funds' votes are significant drivers of the voting outcome of a proposal. Failed proposals are associated with lower CEO pay, especially excess pay, in the following year. Say-on-pay proposals opposed by more mutual funds are also followed by lower excess CEO pay. Collectively, evidence in this paper suggests that institutions (including passive institutions) play an important role in setting CEO pay through the voting channel.
The second essay examines the equity loan supply for short selling. Using detailed stock lending data, we show that active equity funds, on average, are informed, stock lenders. The stocks they lend outperform those that they do not. The stocks they recall and sell perform worse in the future than those that remain on loan. These funds avoid lending stocks when lending fees are extremely high and use the shorting market's signals to form stock-selling decisions. Our findings help explain why institutional investors lend stocks. They also highlight a new source of short-sale constraints arising from the informed loan supply. / Doctor of Philosophy / Shareholders of a firm are expected to monitor executive compensation. Among all share-holders, institutional investors such as mutual funds play an important role in setting pay practices for executives. However, do they vote on related proposals at annual meetings or simply "vote by feet"? The first essay strives to answer the question using mutual fund proposal vote records data. Our findings suggest that mutual funds can affect CEO compensation in the future by voting against management-initiated pay proposals and the effect is both statistically and economically significant.
Institutional investors such as mutual funds also participate in lending business on otherwise idle shares in their portfolio. While they are often considered passive and not informed in the equity loan market, their behavior has been much less investigated. We study the extent to which mutual funds exploit information in lending their shares using the first detailed stock lending dataset obtained from SEC filings. We find that mutual funds are informed lenders and important to market efficiency.
| Identifer | oai:union.ndltd.org:VTETD/oai:vtechworks.lib.vt.edu:10919/99209 |
| Date | 01 July 2020 |
| Creators | Li, Fan |
| Contributors | Finance, Xu, Jin, Ye, Pengfei, MacKinlay, Andrew, Easterwood, John C. |
| Publisher | Virginia Tech |
| Source Sets | Virginia Tech Theses and Dissertation |
| Detected Language | English |
| Type | Dissertation |
| Format | ETD, application/pdf |
| Rights | In Copyright, http://rightsstatements.org/vocab/InC/1.0/ |
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