Transparency in Voting: Institutional Investors' Disclosure of Voting Rationales

We study institutional investors' disclosure of voting rationales, voluntary explanations accompanying proxy votes that have become increasingly common over the past decade. Using novel data covering over 33 million votes cast at US firms, combined with survey evidence from stewardship professionals, we document that adoption reflects a structured institution-level policy associated with stewardship incentives, client demand for transparency, and institutional norms. Conditional on adoption, disclosure is not symbolic compliance; rather, it reflects time and resource constraints and occurs when voting decisions are most difficult to interpret, including when investors vote against management, diverge from proxy advisor recommendations, or depart from their general voting policies. On these votes, rationales provide substantive and incremental information. Finally, US institutions experience higher net flows after initiating disclosure, suggesting that clients value this transparency. Our study documents that voting rationales serve as a mechanism through which institutional investors enhance transparency and accountability in their governance decisions.