Do institutional investors monitor their large-scale vs. small-scale investments differently? Evidence from the say-on-pay vote

Miriam Schwartz-Ziv; Russ Wermers

doi:10.1016/j.jbankfin.2022.106532

Do institutional investors monitor their large-scale vs. small-scale investments differently? Evidence from the say-on-pay vote

Miriam Schwartz-Ziv^*, Russ Wermers

^*Corresponding author for this work

Business Administration

Research output: Contribution to journal › Article › peer-review

3 Scopus citations

Abstract

We examine the relation between an institution's stock ownership and its tendency to support corporate management through the “Say-on-Pay” (SOP) executive compensation vote. Institutional advisors are more likely to oppose management on the SOP vote for their small-scale investments, i.e., investments that comprise a small fraction of an institution's aggregate stockholdings across its funds, or, alternatively, investments that comprise a small fraction of the total equity market capitalization of a corporation. We find evidence indicating that this voting pattern reflects an institutions’ overall sentiment for the stock, and is particularly prevalent when institutions have limited attention to monitor their investments.

Original language	American English
Article number	106532
Journal	Journal of Banking and Finance
Volume	141
DOIs	https://doi.org/10.1016/j.jbankfin.2022.106532
State	Published - Aug 2022

Bibliographical note

Funding Information:
Miriam Schwartz-Ziv is from the Hebrew University of Jerusalem; Russ Wermers is from the Smith School of Business, University of Maryland at College Park. We thank the editor and four anonymous referees as well as Tim Adam, Jie Cai, Jackie Cook, Darrell Duffie, Fabrizio Ferri, Slava Fos, Yaniv Grinstein, Charlie Hadlock, Peter Iliev, Zoran Ivković, Feng (Jack) Jiang, Naveen Khanna, Mathias Kronlund, Jerchern Lin, Michelle Lowry, Nadya Malenko, Ric Marshal, James McRitchie, Michael Ostrovski, Otto Randl, Andrei Simonov, David Stolin, Tilan Tang, Yuehua Tang, Christoph Wenk, Jun Yang, and participants at the joint Humboldt University and ESMT Conference on Recent Advances in Mutual Fund and Hedge Fund Research, 2014 FMA Conference, 2015 DePaul University Conference in Corporate Social Responsibility, 2016 SEC Financial Market Regulation Conference, 2016 European Finance Association Conference, 2017 ECGI Institutional Investor Activism and Engagement Conference, 2018 MARC, as well as seminar participants at the University of Baltimore, SUNY Buffalo, Chulalongkorn University, University of Cincinnati, the Hebrew University of Jerusalem, Institutional Shareholder Services, Michigan State University, and the Securities and Exchange Commission, for helpful comments. We thank Bingkuan (Bryan) Cao, Corrine Carr, Sam Floyd and, especially, Jinming Xue for research assistance. Miriam Schwartz-Ziv thanks the Israel Science Foundation (ISF) for generously supporting this research (grant number 264/20).

Funding Information:
1 Miriam Schwartz-Ziv is from the Hebrew University of Jerusalem; Russ Wermers is from the Smith School of Business, University of Maryland at College Park. We thank the editor and four anonymous referees as well as Tim Adam, Jie Cai, Jackie Cook, Darrell Duffie, Fabrizio Ferri, Slava Fos, Yaniv Grinstein, Charlie Hadlock, Peter Iliev, Zoran Ivković, Feng (Jack) Jiang, Naveen Khanna, Mathias Kronlund, Jerchern Lin, Michelle Lowry, Nadya Malenko, Ric Marshal, James McRitchie, Michael Ostrovski, Otto Randl, Andrei Simonov, David Stolin, Tilan Tang, Yuehua Tang, Christoph Wenk, Jun Yang, and participants at the joint Humboldt University and ESMT Conference on Recent Advances in Mutual Fund and Hedge Fund Research, 2014 FMA Conference, 2015 DePaul University Conference in Corporate Social Responsibility, 2016 SEC Financial Market Regulation Conference, 2016 European Finance Association Conference, 2017 ECGI Institutional Investor Activism and Engagement Conference, 2018 MARC, as well as seminar participants at the University of Baltimore, SUNY Buffalo, Chulalongkorn University, University of Cincinnati, the Hebrew University of Jerusalem, Institutional Shareholder Services, Michigan State University, and the Securities and Exchange Commission, for helpful comments. We thank Bingkuan (Bryan) Cao, Corrine Carr, Sam Floyd and, especially, Jinming Xue for research assistance. Miriam Schwartz-Ziv thanks the Israel Science Foundation (ISF) for generously supporting this research (grant number 264/20).

Publisher Copyright:
© 2022

Keywords

Institutional investors
Say-on-pay
Shareholder's votes
Small shareholders

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10.1016/j.jbankfin.2022.106532

Cite this

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title = "Do institutional investors monitor their large-scale vs. small-scale investments differently? Evidence from the say-on-pay vote",

abstract = "We examine the relation between an institution's stock ownership and its tendency to support corporate management through the “Say-on-Pay” (SOP) executive compensation vote. Institutional advisors are more likely to oppose management on the SOP vote for their small-scale investments, i.e., investments that comprise a small fraction of an institution's aggregate stockholdings across its funds, or, alternatively, investments that comprise a small fraction of the total equity market capitalization of a corporation. We find evidence indicating that this voting pattern reflects an institutions{\textquoteright} overall sentiment for the stock, and is particularly prevalent when institutions have limited attention to monitor their investments.",

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author = "Miriam Schwartz-Ziv and Russ Wermers",

note = "Funding Information: Miriam Schwartz-Ziv is from the Hebrew University of Jerusalem; Russ Wermers is from the Smith School of Business, University of Maryland at College Park. We thank the editor and four anonymous referees as well as Tim Adam, Jie Cai, Jackie Cook, Darrell Duffie, Fabrizio Ferri, Slava Fos, Yaniv Grinstein, Charlie Hadlock, Peter Iliev, Zoran Ivkovi{\'c}, Feng (Jack) Jiang, Naveen Khanna, Mathias Kronlund, Jerchern Lin, Michelle Lowry, Nadya Malenko, Ric Marshal, James McRitchie, Michael Ostrovski, Otto Randl, Andrei Simonov, David Stolin, Tilan Tang, Yuehua Tang, Christoph Wenk, Jun Yang, and participants at the joint Humboldt University and ESMT Conference on Recent Advances in Mutual Fund and Hedge Fund Research, 2014 FMA Conference, 2015 DePaul University Conference in Corporate Social Responsibility, 2016 SEC Financial Market Regulation Conference, 2016 European Finance Association Conference, 2017 ECGI Institutional Investor Activism and Engagement Conference, 2018 MARC, as well as seminar participants at the University of Baltimore, SUNY Buffalo, Chulalongkorn University, University of Cincinnati, the Hebrew University of Jerusalem, Institutional Shareholder Services, Michigan State University, and the Securities and Exchange Commission, for helpful comments. We thank Bingkuan (Bryan) Cao, Corrine Carr, Sam Floyd and, especially, Jinming Xue for research assistance. Miriam Schwartz-Ziv thanks the Israel Science Foundation (ISF) for generously supporting this research (grant number 264/20). Funding Information: 1 Miriam Schwartz-Ziv is from the Hebrew University of Jerusalem; Russ Wermers is from the Smith School of Business, University of Maryland at College Park. We thank the editor and four anonymous referees as well as Tim Adam, Jie Cai, Jackie Cook, Darrell Duffie, Fabrizio Ferri, Slava Fos, Yaniv Grinstein, Charlie Hadlock, Peter Iliev, Zoran Ivkovi{\'c}, Feng (Jack) Jiang, Naveen Khanna, Mathias Kronlund, Jerchern Lin, Michelle Lowry, Nadya Malenko, Ric Marshal, James McRitchie, Michael Ostrovski, Otto Randl, Andrei Simonov, David Stolin, Tilan Tang, Yuehua Tang, Christoph Wenk, Jun Yang, and participants at the joint Humboldt University and ESMT Conference on Recent Advances in Mutual Fund and Hedge Fund Research, 2014 FMA Conference, 2015 DePaul University Conference in Corporate Social Responsibility, 2016 SEC Financial Market Regulation Conference, 2016 European Finance Association Conference, 2017 ECGI Institutional Investor Activism and Engagement Conference, 2018 MARC, as well as seminar participants at the University of Baltimore, SUNY Buffalo, Chulalongkorn University, University of Cincinnati, the Hebrew University of Jerusalem, Institutional Shareholder Services, Michigan State University, and the Securities and Exchange Commission, for helpful comments. We thank Bingkuan (Bryan) Cao, Corrine Carr, Sam Floyd and, especially, Jinming Xue for research assistance. Miriam Schwartz-Ziv thanks the Israel Science Foundation (ISF) for generously supporting this research (grant number 264/20). Publisher Copyright: {\textcopyright} 2022",

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month = aug,

doi = "10.1016/j.jbankfin.2022.106532",

language = "American English",

volume = "141",

journal = "Journal of Banking and Finance",

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Do institutional investors monitor their large-scale vs. small-scale investments differently? Evidence from the say-on-pay vote

Abstract

Bibliographical note

Keywords

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