A paper co-authored at Cambridge Judge finds that institutional shareholders recall shares to oppose management in proxy votes.
The article, entitled “The role of institutional investors in voting: evidence from the securities lending market”, was named best paper this month in the Global Challenge for Innovation in Corporate Governance by investment management firm BlackRock and the National Association of Corporate Directors (NACD) in the US.
The research was co-authored by Pedro Saffi, University Lecturer in Finance at Cambridge Judge, and it breaks new ground in showing how institutional investors influence the proxy voting process through share recall. The paper will be published in a forthcoming issue of Journal of Finance.
“The research shows that institutional investors care about exercising their voting rights, especially when there are important proposals on the ballot like those related to compensation policies and M&A,” said Saffi.
This research is particularly relevant during a period that has seen increased emphasis on shareholder activism.
The paper finds that during proxy voting periods institutional investors often recall their loaned shares prior to the record date in order to exercise their voting rights, and that there is a correlation between share recall and investors’ lack of support for management in the outcome of proxy votes.
Specifically, the research found higher share recall for firms with weaker performance or corporate governance, and when executive pay or merger issues are on the ballot. In examining the subsequent votes, the researchers found that higher recall is associated with more votes for activist shareholder proposals and fewer votes for management.