Finance Series
(Re)call of Duty: Mutual Fund Securities Lending and Proxy Voting
Working Paper Author/Authors
University of Florida
Qifei Zhu
National University of Singapore
Key Finding
Mutual funds—especially ESG funds—routinely recall loaned shares to vote, using this power to oppose management and support shareholder initiatives, and funds that prioritize such voting attract more institutional inflows despite sacrificing some lending
Abstract
Taking advantage of a novel dataset on individual mutual funds' securities lending activities, we provide systematic evidence that mutual funds, especially ESG funds, recall loaned shares prior to voting record dates. Funds' responsiveness to recall for voting purposes varies with their stated lending policies, ownership stakes in portfolio firms, and investment horizons, indicating heterogeneity in their perceived value of voting rights. Recalled shares are more likely to be voted against management proposals, and in favor of shareholder proposals and dissident slates in proxy contests. Recall-sensitive funds attract higher inflows from institutional investors while foregoing modest lending revenue.
