Working Paper: NBER ID: w20176
Authors: Stephen G. Dimmock; William C. Gerken; Zoran Ivković; Scott J. Weisbenner
Abstract: 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.
Keywords: capital gains; mutual funds; governance; tax lock-in
JEL Codes: G11; G23; G34; H20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| higher accrued capital gains (H24) | decreased likelihood of selling stocks prior to contentious votes (G34) |
| higher accrued capital gains (H24) | increased likelihood of voting against management (G34) |
| decreased likelihood of selling stocks prior to contentious votes (G34) | increased likelihood of voting against management (G34) |
| aggregate capital gains across mutual funds holding a stock (G23) | likelihood of management losing a vote (D72) |
| increased accrued gains from 50% to 100% (G32) | probability of opposing management increases significantly (L29) |