How are Shareholder Votes and Trades Related?

• In Event: Investors disagreement and limited attention

Abstract

We study the relation between shareholder votes and trading. Using high frequency data, we demonstrate that around the shareholder meeting date, the abnormal daily volume, number of trades, and volatility are all substantially larger compared to the pre-voting period. This increase is particularly strong and persistent when shareholders are unsupportive of management. We next analyze the vote-trade relationship at the investor level, using data on daily trades and the corresponding votes of the same funds. We document that before vote results are made public, funds who vote in support of management also purchase these stocks, and vice versa. However, when a subsequent vote outcome contradicts a fund’s vote, the fund updates its trading patterns and aligns them in the direction of the vote outcome. Our findings further demonstrate that votes catalyze trading particularly when the price reaction is large, the vote outcome is surprising, higher degrees of information asymmetries exist, and investors are not distracted.

Authors

• Sophia Li, Rutgers University

• Miriam Schwartz-Ziv, Michigan State University