Do Institutional Investors Monitor their Large vs. Small Investments Differently? Evidence from the Say-On-Pay Vote

Do Institutional Investors Monitor their Large vs. Small Investments Differently? Evidence from the Say-On-Pay Vote

Miriam Schwartz-Ziv, Russ Wermers

Series number :

Serial Number: 
541/2017

Date posted :

January 29 2018

Last revised :

April 16 2018
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Keywords

  • shareholder’s votes • 
  • Say-on-Pay • 
  • Financial institutions • 
  • small shareholders

Widely-cited theoretical models predict that large shareholders will monitor man- agement, while small shareholders will free-ride. However, we nd that institution- al investors are particularly likely to oppose management on Say-On-Pay for their small-scale shareholdings; the presence of a large blockholder further catalyzes their opposition.

We also nd that the scale of investment at the institutional level predicts voting patterns better than the scale of investment at the fund level. Overall, our ndings demonstrate that, when a low-cost monitoring opportunity is available, small positions that aggregate to a large level of ownership across institutions can play a meaningful role in corporate governance.

Authors

Real name:
Miriam Schwartz-Ziv
Real name: 
Research Member
University of Maryland, Robert H. Smith School of Business