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Roni Michaely: HKU Business School at University of Hong Kong

Silvina Rubio: University of Bristol Business School

Irene Yi: Rotman School of Management at University of Toronto



We examine why institutional investors vote the way they vote, using a novel dataset on nearly one million voting rationales provided by institutional investors. First, we find that institutional investors are more likely to provide rationales when they vote against management, suggesting that they disclose rationales to express their concerns over management. Second, using machine learning techniques and focusing on rationales on director elections, we find that the most important reasons behind opposing directors are board independence, board diversity, tenure, firm governance, and busyness. Further, institutional investors are increasingly voting against directors to hold them accountable for failure to address environmental and social issues. We find that institutional investors’ concerns are well-grounded: companies with low board gender diversity receive more rationales on board diversity, similar for companies with long director tenure and busy directors. Finally, we show that companies with high dissent voting related to board diversity, tenure, and busyness improve their board composition in the following year. Our evidence shows that voting rationales contain useful information for firms about investors reason for opposing directors, providing an effective low-cost strategy to promote good governance practices in their portfolio companies.

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