Do Institutional Investors Monitor Their Large vs. Small Investments Differently? Evidence from the Say-on-Pay Vote

Widely-cited theoretical models predict that large shareholders will monitor management, while small shareholders will free-ride. However, we find that institutional investors are particularly likely to oppose management on Say-On-Pay for their small-scale shareholdings; the presence of a large blockholder further catalyzes their opposition. We also find that the scale of investment at the institutional level predicts voting patterns better than the scale of investment at the fund level. Overall, our findings demonstrate that, when a low-cost monitoring opportunity is available, small positions that aggregate to a large level of ownership across institutions can play a meaningful role in corporate governance