This paper investigates voting preferences of institutional investors using the unique setting of the securities lending market. Investors restrict lendable supply and/or recall loaned shares prior to the proxy record date to exercise voting rights. Recall is higher for investors with greater incentives to monitor, for firms with poor performance or weak governance, and for proposals where returns to governance are likely higher. At the subsequent vote, recall is associated with less support for management and more support for shareholder proposals. Our results indicate that institutions value their vote and use the proxy process to affect corporate governance.
This paper investigates the effect of cross-country differences in collateral laws regarding movable assets on lending and sectoral allocation of resources. Using micro-level loan data for a sample of emerging market countries we show that loan-to-values of loans collateralized with movable assets are on average 21 percentage points higher in countries with strong-collateral laws relative to immovable assets. Further, stronger collateral laws tilt collateral composition away from immovable to movable assets. We also provide evidence of a collateral class, including bank guarantees, for which enforcement is independent of collateral law. To examine the effect of collateral laws on real activity we map the relationship of collateral laws and collateral composition to asset-composition and sectoral resource allocation using industry-level output and employment data. Weak collateralization laws that discourage the use of movables assets as collateral create distortions in the allocation of resources that favor immovable-based production. The results shed light on an important channel -collateral laws -through which legal institutions affect lending and real economic activity.
We document that the deregulation of bank branching restrictions in the United States triggered a reallocation across sectors, with end effects on state-level volatility. This change in state-level volatility cannot be explained simply by shifts in sector-level returns and volatility. A reallocation effect is at play. To study this effect, we invoke a benchmark allocation based on mean-variance portfolio theory applied to sectoral returns. We find that the realized sectoral allocation of output at the state-level converges towards this benchmark allocation, at a rate that is hastened following the deregulation. This partly occurs because sectors with zero weight in the benchmark allocation see their share of total output shrink. We show convergence is particularly strong in sectors characterized by young, small and external finance dependent firms, and for states that have a larger share of such sectors. The findings are robust to the endogeneity of deregulation dates. They suggest that improving bank access to branching affects the sectoral specialization (or diversification) of output, in a manner that depends on the variance-covariance properties of sectoral returns, rather than on their average only.Key words: Financial development, Growth, Volatility, Diversification, Deregulation, Liberalization, Mean-variance efficiency. JEL classification: E44, F02, F36, O16, G11, G21, G28 *We thank Phil Strahan for sharing with us a variety of data on banking deregulation for the United States, and for his comments on the paper. We are also grateful to F. Boissay (EFA discussant), Giovanni Dell'ariccia, Denis Gromb, Raghuram Rajan, Antoinette Schoar, David Thesmar and seminar participants at Bank of England, Bank for International Settlements (BIS), CREI (Pompeu Fabra), EFA Meetings (2007) A reallocation effect is at play. To study this effect, we invoke a benchmark allocation based on mean-variance portfolio theory applied to sectoral returns. We find that the realized sectoral allocation of output at the state-level converges towards this benchmark allocation, at a rate that is hastened following the deregulation. This partly occurs because sectors with zero weight in the benchmark allocation see their share of total output shrink. We show convergence is particularly strong in sectors characterized by young, small and external finance dependent firms, and for states that have a larger share of such sectors. The findings are robust to the endogeneity of deregulation dates. They suggest that improving bank access to branching affects the sectoral specialization (or diversification) of output, in a manner that depends on the variance-covariance properties of sectoral returns, rather than on their average only.,Key words: Financial development, Growth, Volatility, Diversification, Deregulation, Liberalization, Mean-variance efficiency.JEL classification: E44, F02, F36, O16, G11, G21, G28 1 IntroductionOver the past decade, an extensive literature in international finance has confirmed the role of financial develop...
We examine how institutional ownership structure gives rise to limits to arbitrage through its impact on short-sale constraints. Stocks with lower, more concentrated, short-term, and less passive ownership exhibit lower lending supply, higher costs of shorting, and higher arbitrage risk. These constraints limit the ability of arbitrageurs to take short positions and delay the correction of mispricing. Stocks with more concentrated ownership exhibit smaller announcement day reactions, larger post-earnings announcement drift, and an additional negative abnormal return of -0.47% in the week following a positive shorting demand shock. (G10, G12, G14) * We are immensely grateful to Dataexplorers (now part of Markit) for providing the equity lending data. We thank
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