Transparency in Voting: Institutional Investors' Disclosure of Voting Rationales

We examine why and when institutional investors disclose the rationales behind their proxy voting decisions, a transparency practice that has expanded rapidly over the past decade. Using novel data on over 33 million votes cast at U.S. firms by institutional investors worldwide, we show that the decision to disclose rationales is mainly an institution-level policy that is highly persistent, driven by stewardship incentives, client demands, and institutional norms. The implementation of this policy, however, is context-driven and triggered by uncertainty: using machine learning, we document that disclosure is more likely when voting against management or when deviating from expectations. This suggests that rationales convey information beyond investors’ general voting policies. Finally, consistent with some investors deriving benefits from disclosing voting rationales, we observe that institutions experience growth in assets under management after adopting this policy. Our study documents that voting rationales serve as a mechanism for enhancing transparency and accountability in corporate governance.