Journal of Corporate Finance Vol. 80 2023
Mutual funds' capital gains lock-in and earnings management
Abstract
Capital gains taxation creates a lock-in effect, increasing investors' incentives to monitor and decreasing portfolio firms' incentives to cater to short-term investors. We show a negative relation between lock-in and portfolio firms' earnings management, and this relation is stronger for capital gains held by tax-sensitive investors. Further, the relation between lock-in and earnings management is stronger when the capital gains tax rate is higher. We show that locked-in funds vote against management and against audit committee members' reappointment following earnings management. Locked-in funds are less likely to exit a position following disappointing earnings announcements, reducing firms' incentive to manage earnings.
- DOI
- 10.1016/j.jcorpfin.2023.102422
- Volume
- 80
- Pages
- 102422
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref