Do Long-Term Institutional Shareholders Always Vote in Favour of Board Recommendations? The Moderating Effect of Cash Holdings

This article aims to examine the voting behaviour of long-term institutional shareholders towards board recommendations on management proposals and resolutions and how the potential agency costs could moderate such voting behaviour. This study is conducted using all corporate capital proposals put to vote by management during the annual general meetings (AGM) of publicly listed firms on the London Stock Exchange over a period of 17 years from 2000 to 2016. Building on agency theory and the concept of the monitoring function of institutional shareholders, this study finds that long-term institutional shareholders do support board recommendations on management proposals, but potential agency concerns linked to excess cash holding can negatively moderate this relationship. Additional analysis reveals that this moderating effect is observed only for management proposals related to cash inflows, specifically after the 2007–2009 financial crisis. This study highlights the importance of long-term institutional shareholders actively monitoring firms’ cash holdings and using voting to address agency concerns while advising corporate managers to optimise cash management and stay attuned to shareholder preferences. For policymakers, the research suggests promoting transparency in corporate governance and strengthening shareholder engagement to reduce agency problems and improve governance. Several robustness tests are conducted, and the results support our predictions.