Gianpaolo Parise's webpage

Borrowed Information: Securities Lending and Shareholder Voting  

Abstract:
We identify a new channel through which mutual funds and ETFs discipline management. Using fund-level lending positions and proxy votes, we show that funds that lend shares are less likely to vote with management than nonlending funds voting on the same agenda item. The effect is driven by index trackers, is stronger at special meetings and on contentious proposals, and is concentrated among funds that lend through affiliated agents, consistent with information from informed short sellers reaching index trackers through the lending market. An instrumental variable strategy based on aggregate short-selling demand and the SEC’s enhanced Form N-PX disclosure requirements both support a causal interpretation: access to information from the lending market affects voting decisions. Finally, we show that lending funds earn a higher “vote alpha,” indicating that their votes are more often aligned with value-enhancing outcomes. Our findings reveal how securities lending allows passive investors to harness information produced by sophisticated borrowers and translate it into shareholder voice.