Capital Gains Lock-In and Governance Choices
Because of differences in accrued gains and investors' tax-sensitivity, capital gains "lock-in" varies across mutual funds even for the same stock at the same time. Using this variation, we show that tax lock-in affects funds' governance decisions. Higher tax lock-in decreases the likelihood a fund sells a stock prior to contentious votes, and increases the likelihood the fund votes against management. Consistent with tax motivations, these findings are concentrated among funds with tax-sensitive investors. High aggregate capital gains across funds holding a stock predicts a higher likelihood management loses a vote and a lower likelihood a contentious vote is proposed.
Document Object Identifier (DOI): 10.3386/w20176
Published: Stephen G. Dimmock & William C. Gerken & Zoran Ivković & Scott J. Weisbenner, 2018. "Capital gains lock-in and governance choices," Journal of Financial Economics, vol 127(1), pages 113-135. citation courtesy of
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