Abstract

This paper analyzes how trading after shareholder meetings changes the composition of the shareholder base. Using data on daily trades we find that mutual funds reduce their holdings if their votes are opposed to the voting outcome. Trading volume is high even when stock prices do not change, peaks at the meeting date, and remains high up to four weeks after shareholder meetings. These findings are difficult to reconcile with models in which shareholders trade because of differences in information. Fund characteristics that proxy for heterogeneous preferences are relevant for funds’ trading decisions, but do not explain our results. We explore a model of trading based on differences of opinion, which offers sharp predictions on the relationship between volume and volatility, find strong support for its predictions in the data, and little to support models in which voting aggregates information. We conclude that shareholders disagree when they vote at meetings. Hence, trading after-meetings creates a shareholder base with more homogeneous beliefs. We argue that these findings have important implications for corporate governance.