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In this article, we examine corporate investment decisions in a model with short selling. We show that high short-selling activities can cause firms to overinvest and that the agency problems between managers and shareholders drive this overinvestment. Empirically, we find that short interest is positively associated with subsequent corporate investment and that the effect of short-selling activities on investment is stronger when the sensitivity of chief executive officer compensation to stock price performance is greater. The results are not explained by short-sale constraints or firm overvaluation. Additionally, short-selling-induced corporate investments can partly explain the negative relation between both short interest and corporate investment with subsequent stock returns., 1 | INTRODUCTION Short sellers are active investors who play an increasingly important role in the financial market. Although the finance literature has made substantial progress in understanding the effects [...]

We study how conflicts within a lending syndicate affect loan contract and syndicate formation. We argue that loan provisions serve an important dual function: In addition to moderating borrowerlender conflicts, they reduce within-syndicate conflicts. We show that greater potential for within-syndicate conflicts is associated with more and stricter covenants. Loans are less restrictive when the interests of participants and the lead arrangers are better aligned, for example, when participant-banks have stronger relationships with the lead arranger or hold borrower's equity (indirectly). Overall, our results show that covenant choice, syndicate formation, and lead arranger's loan allocation all play an important role in reducing within-syndicate conflicts. KEYWORDS bank loans, conflicts of interest, covenants, lending syndicate, monitoring, 1 | INTRODUCTION Many financial services are delivered by financial intermediaries organized as syndicates. However, the intermediaries in a syndicate may be asymmetrically informed and have divergent interests, creating the [...]

We study the implications of market segmentation in a domestic setting, the US municipal bond market. A (state-level) segmentation of this market emerges from asymmetric tax exemption. Municipal bond investors [...]

This paper studies the impact of corporate headquarters location on capital structure policies. We show that firms exhibit conformity in their financing policies to those of geographically proximate firms and [...]

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jbankfin.2009.05.025 Byline: Lilian Ng (a), Qinghai Wang (b), Nataliya Zaiats (c) Keywords: Proxy voting; Voting policies; Mutual funds; Business ties; Institutional shareholder services (ISS) Abstract: We employ a new comprehensive proxy voting records database to investigate whether mutual funds consider prior firm performance when they vote on a diverse range of management- and shareholder-sponsored proposals relating to governance, compensation, and director election. We argue that prior firm performance plays a role in the monitoring effort of mutual funds as they fulfill their fiduciary duties. Results show that voting is related to prior firm performance for selected management and shareholder proposals and that it is consistent with Institutional Shareholder Services' recommendations. Mutual funds support management (shareholder) proposals less (more) when prior firm performance has been weak. Furthermore, even when mutual funds deviate from their fund family's voting policies, they attach importance to prior firm performance, and their voting is, to a certain degree, affected by business ties. Author Affiliation: (a) Lubar School of Business, University of Wisconsin-Milwaukee, Milwaukee, WI 53201, USA (b) College of Management, Georgia Institute of Technology, Atlanta, GA 30308, USA (c) School of Management, Simmons College, Boston, MA 02115, USA Article History: Received 2 September 2008; Accepted 27 May 2009 Article Note: (footnote) [star] We thank seminar participants of Nanyang Technological University in Singapore, University of Wisconsin-Milwaukee, FMA 2007 meetings in Orlando, FL, as well as the anonymous referees and the editor for their helpful comments and suggestions. This paper was originally submitted to Professor Giorgio Szego on 06/27/2007 and was revised once prior to submission through EES.

This article investigates whether different types of institutions have discernible trading motives in response to portfolio disclosures. Results show that banks, life insurance companies, mutual funds, and investment advisors who act as external managers generally have similar trading strategies. They sell more poorly performing stocks during the fourth quarter than the first 3 quarters of the year, and such trading behavior is more pronounced for institutions whose stocks on average have underperformed the market. In contrast, property and liability insurance companies, pension funds, colleges, universities, and foundations, who manage their own assets, show less inclination to window-dress their portfolios.