Research

We investigate the link between CEOs' unrealized capital gains tax liabilities ("tax burdens") and share pledging; a practice in which executives use shares in their firm as collateral for personal loans. We argue that a prime benefit of share pledging is the ability to obtain personal liquidity without selling appreciated stock, thereby enabling CEOs to avoid triggering large tax liabilities. Employing a hand-collected sample of executives' share pledging, we provide the first systematic evidence that CEO taxes are a primary driver of the decision to pledge shares. After Institutional Shareholder Services (ISS) discouraged the practice in 2012, firms with high-tax burden CEOs were less likely to impose anti-pledging restrictions. Moreover, those firms that restricted share pledging increased liquid pay for affected CEOs. Overall, our findings indicate that taxes are a first-order driver of share pledging, and that firms and CEOs use share pledging to contract around CEOs' personal tax liabilities.

We study the role of public disclosure of voting positions and engagement meetings in tacitly coordinating influence on companies at annual meetings of US listed firms. Using a difference-indifference design, we find that a large universal investor's (Norges Bank Investment Management-"NBIM") early release of its voting positions opposing management has a significant incremental effect on the voting outcomes for director elections and shareholder proposals. In addition, we document that early release of voting positions is more influential when NBIM's position is less likely to be predictable. We further find that NBIM is more likely to engage with firms both before (which may provide private information to inform voting) and after (to follow up and continue to advocate for change) dissenting votes and that its voting position has more influence when it is preceded by direct engagement, suggesting that other investors view these voting positions as more credible signals.