Rutgers Assistant Professor Sophia Zhengzi writes:
Are shareholder votes a sufficient form of voice that catalyzes trades across the board? Are shareholders’ votes and trades correlated? And do shareholders update their trading patterns based on the information conveyed by other investors’ votes? We address these questions by examining the relation between votes and volume at the stock level, and the relation between mutual funds’ daily trades and their corresponding votes.
We first document that on the shareholder meeting date abnormal volume is equal to 19.4%, and that such large abnormal volume exists even around the dates of meeting that have only routine proposals on their agendas. This finding demonstrates that shareholder votes are associated with significant trading activity across the board….We find that mutual funds’ trades during the period between the proxy filing and the meeting date are indeed positively correlated: During this period, funds that vote against management on at least one proposal are more likely to decrease their holdings in the company than funds that vote in support of management on all proposals. We also investigate the relation between a fund’s say-on-pay votes and its trades, because the say-on-pay vote is frequently viewed as a general vote of confidence in management. Our findings demonstrate that between the proxy filing and the meeting date, funds that voted against management on the say-on-pay vote were more likely to decrease their holdings in the company, relative to companies for which they voted in support of say-on-pay. Taken together, these findings suggest that before the vote outcome is observed, mutual funds’ votes and trades are positively correlated, implying that mutual funds vote sincerely, and that their trades and votes complement each other.