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Capital Gains Lock-In and Governance Choices

  • Stephen G. Dimmock
  • William C. Gerken
  • Zoran Ivković
  • Scott J. Weisbenner

Because of differences in accrued gains and investors' tax-sensitivity, capital gains "lock-in" varies across mutual funds even for the same stock at the same time. Using this variation, we show that tax lock-in affects funds' governance decisions. Higher tax lock-in decreases the likelihood a fund sells a stock prior to contentious votes, and increases the likelihood the fund votes against management. Consistent with tax motivations, these findings are concentrated among funds with tax-sensitive investors. High aggregate capital gains across funds holding a stock predicts a higher likelihood management loses a vote and a lower likelihood a contentious vote is proposed.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 20176.

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Date of creation: May 2014
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Handle: RePEc:nbr:nberwo:20176
Note: AP CF PE
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