Roni Michaely | The University of Hong Kong (original) (raw)

Papers by Roni Michaely

Review of Financial Studies, May 31, 2017

Social Science Research Network, 2014

Policymakers frequently try to use dividend tax changes to affect payout policy. However, empiric... more Policymakers frequently try to use dividend tax changes to affect payout policy. However, empirical evidence finds the effect to be much smaller than theory implies. Using identification strategy that exploits a large exogenous shock to dividend taxation and comprehensive proprietary data on ownership structure and owners' tax preference, we show that absent of conflicting objectives between managers and owners, dividend taxation has a large effect on payouts. The impact becomes insignificant as the number of owners increases. Differential tax preferences across owners is one factor. However, even when owners have the same tax preferences, disperse ownership significantly reduces the impact of dividend taxation; plausibly due to coordination problems across owners and conflicting objectives of owners and managers. Our results explain why previous evidence on the impact of dividend taxation has been so elusive. Taxation has a first order impact on payout policy, but disperse ownership mutes its impact substantially.

National Tax Journal, Sep 1, 2008

We analyze the impact of the May 2003 dividend tax cut on corporate dividend policy. First, we fi... more We analyze the impact of the May 2003 dividend tax cut on corporate dividend policy. First, we find that while there was a temporary increase in dividend initiations, this increase was not long-lasting. While dividend payments were increased right after the tax change, there was a larger and more pronounced increase in repurchases during the same time period. Second, we survey 328 financial executives to determine the effects of the May 2003 dividend tax cut. We find that the tax cut led to initiations and dividend increases at some firms. However, executives say that among the factors that affect dividend policy, the tax rate reduction is less important than the stability of future cash flows, cash holdings, and the historic level of dividends. Tax effects have roughly the same importance as attracting institutional investors and the availability of profitable investments. We also find that press releases only occasionally mention the dividend tax cut as the reason for an initiation. Overall we conclude that the dividend tax reduction had only a second-order impact of payout policy.

Journal of Public Economics, Jul 1, 2017

We test whether dividend taxes affect corporate investments. We exploit Sweden's 2006 dividend ta... more We test whether dividend taxes affect corporate investments. We exploit Sweden's 2006 dividend tax cut of 10 percentage points for closely held corporations and five percentage points for widely held corporations. Using rich administrative panel data and triple-difference estimators, we find that this dividend tax cut affects allocation of corporate investment. Cashconstrained firms increase investment after the dividend tax cut relative to cash-rich firms. Reallocation is stronger among closely held firms that experience a larger tax cut. This result is explained by higher nominal equity in cash-constrained firms and by higher dividends in cash-rich firms after the tax cut. The heterogeneous investment responses imply that the dividend tax cut raises efficiency by improving allocation of investment.

Financial Management, Dec 1, 2008

We survey 328 financial executives to determine the effects of the May 2003 dividend tax cut. We ... more We survey 328 financial executives to determine the effects of the May 2003 dividend tax cut. We find that the tax cut led to initiations and dividend increases at some firms. However, executives say that among the factors that affect dividend policy, the tax rate reduction is less important than the stability of future cash flows, cash holdings, and the historic level of dividends. Tax effects have roughly the same importance as attracting institutional investors and the availability of profitable investments. We also find that press releases only occasionally mention the dividend tax cut as the reason for an initiation.

Social Science Research Network, 2017

While consumers nominally pay the consumption tax, theoretical and empirical evidence is mixed on... more While consumers nominally pay the consumption tax, theoretical and empirical evidence is mixed on whether corporations partly shoulder this burden, thereby, affecting corporate investment. Using a quasi-natural experiment, we show that consumption taxes decrease investment. Firms facing more elastic demand decrease investment more strongly because they bear more of the consumption tax. We corroborate the validity of our findings using 86 consumption tax changes in a crosscountry panel. We document two mechanisms underlying the investment response: reduced firms' profitability and lower aggregate consumption. Importantly, the magnitude of the investment response to consumption taxes is similar to that of corporate taxes.

Social Science Research Network, 2005

Abstract: In early 2002, we surveyed 384 financial executives, to determine the factors that driv... more Abstract: In early 2002, we surveyed 384 financial executives, to determine the factors that drive dividend and share repurchase decisions. Our survey was supplemented by in-depth interviews with an additional 23 executives. The survey consisted of 11 main questions, most with subparts-over 100 questions in total. Although the survey was anonymous, we also collected information on 20 characteristics of the firms and management. We asked questions about firm size, number of employees, industry, CEO education, age of the CEO ...

Review of Financial Studies, Jul 1, 2000

We investigate the effect of asymmetric information on prices and liquidity by analyzing trades, ... more We investigate the effect of asymmetric information on prices and liquidity by analyzing trades, quotes, spreads and depths. Information content should increase with trade size and the degree of information asymmetry of the trading period. Results show that price and liquidity effects are significantly associated with information content as measured by both trade size and the timing of the trade relative to information events. Results are stronger for purchases than sales. Quoted prices are better measures of information effects than transaction prices, because they control for bid-ask bounce. Finally, trades that are known a priori not to contain information have no impact on prices and liquidity, even when they are very large in size.

Journal of Finance, Nov 7, 2003

By the end of January 2001, all NYSE stocks had converted their price quotations from 1/8s and 1/... more By the end of January 2001, all NYSE stocks had converted their price quotations from 1/8s and 1/16s to decimals. This study examines the e¡ect of this change in price quotations on ex-dividend day activity. We ¢nd that abnormal ex-dividend day returns increase in the 1/16 and decimal pricing eras, relative to the 1/8 era, which is inconsistent with microstructure explanations of exday price movements.We also ¢nd that abnormal returns increase in conjunction with a May 1997 reduction in the capital gains tax rate, as they should if relative taxation of dividends and capital gains a¡ects ex-day pricing. IF CAPITAL MARKETS WERE PERFECT, a stock's price would fall by the amount of the dividend on the ex-day. Instead, the ratio of price drop to dividend, known as the ex-day premium, has been consistently below one for decades (e.g., Elton and Gruber (1970), Michaely (1991), or Eades, Hess and Kim (1994)). Several lines of reasoning have developed to explain the ex-day phenomenon: (1) di¡erential taxation between dividends and capital gains, (2) the interaction of taxes and transactions costs to trading stocks, and (3) price discreteness and bid-ask bounce. U.S. markets during the past half-dozen years o¡er a natural experiment to test these hypotheses. During this time, price discreteness and bid-ask spreads fell dramatically, allowing us to test the microstructure-based explanations. At the same time, the capital gains tax rate dropped from 28% to 20%, which permits examination of the tax hypothesis. The most signi¢cant change during the time period of this study is the reduction in the minimum tick size from 1/8 to 1/16 to decimals. This change allows us to directly test several microstructure explanations for why the average ex-divi

Social Science Research Network, 2022

SSRN Electronic Journal, 2020

We gratefully acknowledge valuable comments from several seminar and conference participants. Web... more We gratefully acknowledge valuable comments from several seminar and conference participants. Weber also gratefully acknowledges financial support from the University of Chicago Booth School of Business and the Fama Research Fund.

The Review of Financial Studies, 2020

We analyze communications between the SEC and firms prior to IPOs using LDA analysis and KL diver... more We analyze communications between the SEC and firms prior to IPOs using LDA analysis and KL divergence. The SEC’s concerns closely map onto the regulator’s stated mandate: companies increase prospectus disclosures on precise topics of SEC concern. Revenue recognition is the dominant topic of SEC concern, and it is not independently discovered by investors. Increased SEC concern about it is associated with greater secondary sales, lower post-IPO liquidity, lower post-IPO returns, and a higher probability of withdrawal. The regulator’s role during the capital raising process results in increased transparency but contributes to delays in the going public process.

SSRN Electronic Journal, 2017

The purpose of this chapter is to provide an overview of the IPO literature since 2000. The fewer... more The purpose of this chapter is to provide an overview of the IPO literature since 2000. The fewer numbers of companies going public in recent years has raised many questions regarding the IPO process, in both academic and regulatory circles. As we all strive to understand these changes in the market, it is especially important to understand the dynamics underlying the IPO process. If the process of going public is too costly or the IPO mechanism is plagued by too many conflicts of interest among the various intermediaries, then private companies may rationally choose other methods of raising capital. In a related vein, it is imperative that new regulations not be based on research focusing solely on large, more mature firms. Newly public firms have unique characteristics, and an increased understanding of such issues will contribute positively to well-functioning public markets and further growth of the entrepreneurial sector.

, and an anonymous executive at Thomson Financial. A special thanks to Sanjai Bhagat, Dave Ikenbe... more , and an anonymous executive at Thomson Financial. A special thanks to Sanjai Bhagat, Dave Ikenberry, Bob Markley, and Bill McGrath, who helped us administer the survey and interviews. Amy Couch, Anne Higgs, Mark Leary and especially Si Li provided excellent research support. We thank seminar participants at Columbia, Emory, and SMU , and the University of Florida for helpful comments. Finally, we thank the financial executives who generously allowed us to interview them or who took the time to fill out the survey. This research is partially sponsored by Financial Executives International (FEI), although the views expressed herein do not necessarily represent those of FEI. We acknowledge financial support from the Capital Markets Center at Duk e and Graham acknowledges financial support from an Alfred P. Sloan Research Fellowship. The views expressed herein are those of the authors and not necessarily those of the National Bureau of Economic Research.

SSRN Electronic Journal, 2021

We investigate how board overlap affects coordination and performance among public firms. Our ide... more We investigate how board overlap affects coordination and performance among public firms. Our identification exploits the staggered introduction of Corporate Opportunity Waivers (COWs) in nine U.S. states since 2000. By reducing legal risk to directors serving on multiple boards, the COW legislation increased intra-industry board overlap for those firms that benefit most from the information flow facilitated by board overlap. We find that more board overlap improves firm profitability but also reduces investment, product overlap, and innovation. Our findings support the notion that board overlap curtails firm rivalry.

The Review of Financial Studies, 2019

Portfolio diversification of firms’ controlling owners influences their firms’ capital investment... more Portfolio diversification of firms’ controlling owners influences their firms’ capital investment. Empirically, the effect of owners’ portfolio diversification on their firms’ investment levels is positive for publicly traded firms and tends to be negative for privately held ones. These findings are consistent with predictions of a model in which a risk-averse investor simultaneously chooses her portfolio structure, and both the level and riskiness of capital investment of the firm she controls, and in which the firm can be potentially constrained in its capital investment choices. Overall, our results indicate that owners’ portfolio underdiversification and firms’ financial constraints can affect firms’ resource allocation. Received May 3, 2017; editorial decision March 8, 2019 by Editor Francesca Cornelli. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

SSRN Electronic Journal, 2021

We find that environmental and social (ES) funds in non-ES families adopt a strategic voting patt... more We find that environmental and social (ES) funds in non-ES families adopt a strategic voting pattern: they are supportive of ES proposals that pass or fail by large margins, but unsupportive when their votes are likely to be pivotal. As such, these funds are able to show considerably high support for ES proposals on average, consistent with their stated objectives, while aligning with conflicting family preferences when their votes are likely to make a difference. This voting pattern is predominantly driven by actively managed funds. Our results highlight possible conflict of interest between ES funds and their families; showing that, when it matters the most, family preferences towards ES prevail over funds stated objectives, and perhaps with their fiduciary responsibilities.

Contrary to the central prediction of signaling models, changes in profits do not empirically fol... more Contrary to the central prediction of signaling models, changes in profits do not empirically follow changes in dividends. We show both theoretically and empirically that dividends signal safer, rather than higher, future profits. Using the Campbell (1991) decomposition, we are able to estimate expected cash flows from data on stock returns. Consistent with our model's predictions, cash-flow volatility changes in the opposite direction from that of dividend changes and larger changes in volatility come with larger announcement returns. We find similar results for share repurchases. Crucially, the data supports the prediction-unique to our model-that the cost of the signal is foregone investment opportunities. We conclude that payout policy conveys information about future cash flow volatility. Our methodology can be applied more generally to overcoming empirical problems in testing theories of corporate financing. JEL-Codes: G350.

SSRN Electronic Journal, 2022

This paper explores whether investors’ personal experience of climate change affects their voting... more This paper explores whether investors’ personal experience of climate change affects their voting behavior on environmental issues. We find that fund managers exposed to abnormally hot temperatures are significantly more likely to support environmental proposals. This increased support is stronger for proposals targeting firms with greater climate risk. The effect is more pronounced for funds that a priori tend to vote against environmental proposals (e.g., non-SRI funds, funds located in Republican states and climate sceptic areas). Overall, we show that fund managers’ experiences and increased awareness of climate change have a positive effect on their support for environmental policies.

Review of Financial Studies, May 31, 2017

Social Science Research Network, 2014

Policymakers frequently try to use dividend tax changes to affect payout policy. However, empiric... more Policymakers frequently try to use dividend tax changes to affect payout policy. However, empirical evidence finds the effect to be much smaller than theory implies. Using identification strategy that exploits a large exogenous shock to dividend taxation and comprehensive proprietary data on ownership structure and owners' tax preference, we show that absent of conflicting objectives between managers and owners, dividend taxation has a large effect on payouts. The impact becomes insignificant as the number of owners increases. Differential tax preferences across owners is one factor. However, even when owners have the same tax preferences, disperse ownership significantly reduces the impact of dividend taxation; plausibly due to coordination problems across owners and conflicting objectives of owners and managers. Our results explain why previous evidence on the impact of dividend taxation has been so elusive. Taxation has a first order impact on payout policy, but disperse ownership mutes its impact substantially.

National Tax Journal, Sep 1, 2008

We analyze the impact of the May 2003 dividend tax cut on corporate dividend policy. First, we fi... more We analyze the impact of the May 2003 dividend tax cut on corporate dividend policy. First, we find that while there was a temporary increase in dividend initiations, this increase was not long-lasting. While dividend payments were increased right after the tax change, there was a larger and more pronounced increase in repurchases during the same time period. Second, we survey 328 financial executives to determine the effects of the May 2003 dividend tax cut. We find that the tax cut led to initiations and dividend increases at some firms. However, executives say that among the factors that affect dividend policy, the tax rate reduction is less important than the stability of future cash flows, cash holdings, and the historic level of dividends. Tax effects have roughly the same importance as attracting institutional investors and the availability of profitable investments. We also find that press releases only occasionally mention the dividend tax cut as the reason for an initiation. Overall we conclude that the dividend tax reduction had only a second-order impact of payout policy.

Journal of Public Economics, Jul 1, 2017

We test whether dividend taxes affect corporate investments. We exploit Sweden's 2006 dividend ta... more We test whether dividend taxes affect corporate investments. We exploit Sweden's 2006 dividend tax cut of 10 percentage points for closely held corporations and five percentage points for widely held corporations. Using rich administrative panel data and triple-difference estimators, we find that this dividend tax cut affects allocation of corporate investment. Cashconstrained firms increase investment after the dividend tax cut relative to cash-rich firms. Reallocation is stronger among closely held firms that experience a larger tax cut. This result is explained by higher nominal equity in cash-constrained firms and by higher dividends in cash-rich firms after the tax cut. The heterogeneous investment responses imply that the dividend tax cut raises efficiency by improving allocation of investment.

Financial Management, Dec 1, 2008

We survey 328 financial executives to determine the effects of the May 2003 dividend tax cut. We ... more We survey 328 financial executives to determine the effects of the May 2003 dividend tax cut. We find that the tax cut led to initiations and dividend increases at some firms. However, executives say that among the factors that affect dividend policy, the tax rate reduction is less important than the stability of future cash flows, cash holdings, and the historic level of dividends. Tax effects have roughly the same importance as attracting institutional investors and the availability of profitable investments. We also find that press releases only occasionally mention the dividend tax cut as the reason for an initiation.

Social Science Research Network, 2017

While consumers nominally pay the consumption tax, theoretical and empirical evidence is mixed on... more While consumers nominally pay the consumption tax, theoretical and empirical evidence is mixed on whether corporations partly shoulder this burden, thereby, affecting corporate investment. Using a quasi-natural experiment, we show that consumption taxes decrease investment. Firms facing more elastic demand decrease investment more strongly because they bear more of the consumption tax. We corroborate the validity of our findings using 86 consumption tax changes in a crosscountry panel. We document two mechanisms underlying the investment response: reduced firms' profitability and lower aggregate consumption. Importantly, the magnitude of the investment response to consumption taxes is similar to that of corporate taxes.

Social Science Research Network, 2005

Abstract: In early 2002, we surveyed 384 financial executives, to determine the factors that driv... more Abstract: In early 2002, we surveyed 384 financial executives, to determine the factors that drive dividend and share repurchase decisions. Our survey was supplemented by in-depth interviews with an additional 23 executives. The survey consisted of 11 main questions, most with subparts-over 100 questions in total. Although the survey was anonymous, we also collected information on 20 characteristics of the firms and management. We asked questions about firm size, number of employees, industry, CEO education, age of the CEO ...

Review of Financial Studies, Jul 1, 2000

We investigate the effect of asymmetric information on prices and liquidity by analyzing trades, ... more We investigate the effect of asymmetric information on prices and liquidity by analyzing trades, quotes, spreads and depths. Information content should increase with trade size and the degree of information asymmetry of the trading period. Results show that price and liquidity effects are significantly associated with information content as measured by both trade size and the timing of the trade relative to information events. Results are stronger for purchases than sales. Quoted prices are better measures of information effects than transaction prices, because they control for bid-ask bounce. Finally, trades that are known a priori not to contain information have no impact on prices and liquidity, even when they are very large in size.

Journal of Finance, Nov 7, 2003

By the end of January 2001, all NYSE stocks had converted their price quotations from 1/8s and 1/... more By the end of January 2001, all NYSE stocks had converted their price quotations from 1/8s and 1/16s to decimals. This study examines the e¡ect of this change in price quotations on ex-dividend day activity. We ¢nd that abnormal ex-dividend day returns increase in the 1/16 and decimal pricing eras, relative to the 1/8 era, which is inconsistent with microstructure explanations of exday price movements.We also ¢nd that abnormal returns increase in conjunction with a May 1997 reduction in the capital gains tax rate, as they should if relative taxation of dividends and capital gains a¡ects ex-day pricing. IF CAPITAL MARKETS WERE PERFECT, a stock's price would fall by the amount of the dividend on the ex-day. Instead, the ratio of price drop to dividend, known as the ex-day premium, has been consistently below one for decades (e.g., Elton and Gruber (1970), Michaely (1991), or Eades, Hess and Kim (1994)). Several lines of reasoning have developed to explain the ex-day phenomenon: (1) di¡erential taxation between dividends and capital gains, (2) the interaction of taxes and transactions costs to trading stocks, and (3) price discreteness and bid-ask bounce. U.S. markets during the past half-dozen years o¡er a natural experiment to test these hypotheses. During this time, price discreteness and bid-ask spreads fell dramatically, allowing us to test the microstructure-based explanations. At the same time, the capital gains tax rate dropped from 28% to 20%, which permits examination of the tax hypothesis. The most signi¢cant change during the time period of this study is the reduction in the minimum tick size from 1/8 to 1/16 to decimals. This change allows us to directly test several microstructure explanations for why the average ex-divi

Social Science Research Network, 2022

SSRN Electronic Journal, 2020

We gratefully acknowledge valuable comments from several seminar and conference participants. Web... more We gratefully acknowledge valuable comments from several seminar and conference participants. Weber also gratefully acknowledges financial support from the University of Chicago Booth School of Business and the Fama Research Fund.

The Review of Financial Studies, 2020

We analyze communications between the SEC and firms prior to IPOs using LDA analysis and KL diver... more We analyze communications between the SEC and firms prior to IPOs using LDA analysis and KL divergence. The SEC’s concerns closely map onto the regulator’s stated mandate: companies increase prospectus disclosures on precise topics of SEC concern. Revenue recognition is the dominant topic of SEC concern, and it is not independently discovered by investors. Increased SEC concern about it is associated with greater secondary sales, lower post-IPO liquidity, lower post-IPO returns, and a higher probability of withdrawal. The regulator’s role during the capital raising process results in increased transparency but contributes to delays in the going public process.

SSRN Electronic Journal, 2017

The purpose of this chapter is to provide an overview of the IPO literature since 2000. The fewer... more The purpose of this chapter is to provide an overview of the IPO literature since 2000. The fewer numbers of companies going public in recent years has raised many questions regarding the IPO process, in both academic and regulatory circles. As we all strive to understand these changes in the market, it is especially important to understand the dynamics underlying the IPO process. If the process of going public is too costly or the IPO mechanism is plagued by too many conflicts of interest among the various intermediaries, then private companies may rationally choose other methods of raising capital. In a related vein, it is imperative that new regulations not be based on research focusing solely on large, more mature firms. Newly public firms have unique characteristics, and an increased understanding of such issues will contribute positively to well-functioning public markets and further growth of the entrepreneurial sector.

, and an anonymous executive at Thomson Financial. A special thanks to Sanjai Bhagat, Dave Ikenbe... more , and an anonymous executive at Thomson Financial. A special thanks to Sanjai Bhagat, Dave Ikenberry, Bob Markley, and Bill McGrath, who helped us administer the survey and interviews. Amy Couch, Anne Higgs, Mark Leary and especially Si Li provided excellent research support. We thank seminar participants at Columbia, Emory, and SMU , and the University of Florida for helpful comments. Finally, we thank the financial executives who generously allowed us to interview them or who took the time to fill out the survey. This research is partially sponsored by Financial Executives International (FEI), although the views expressed herein do not necessarily represent those of FEI. We acknowledge financial support from the Capital Markets Center at Duk e and Graham acknowledges financial support from an Alfred P. Sloan Research Fellowship. The views expressed herein are those of the authors and not necessarily those of the National Bureau of Economic Research.

SSRN Electronic Journal, 2021

We investigate how board overlap affects coordination and performance among public firms. Our ide... more We investigate how board overlap affects coordination and performance among public firms. Our identification exploits the staggered introduction of Corporate Opportunity Waivers (COWs) in nine U.S. states since 2000. By reducing legal risk to directors serving on multiple boards, the COW legislation increased intra-industry board overlap for those firms that benefit most from the information flow facilitated by board overlap. We find that more board overlap improves firm profitability but also reduces investment, product overlap, and innovation. Our findings support the notion that board overlap curtails firm rivalry.

The Review of Financial Studies, 2019

Portfolio diversification of firms’ controlling owners influences their firms’ capital investment... more Portfolio diversification of firms’ controlling owners influences their firms’ capital investment. Empirically, the effect of owners’ portfolio diversification on their firms’ investment levels is positive for publicly traded firms and tends to be negative for privately held ones. These findings are consistent with predictions of a model in which a risk-averse investor simultaneously chooses her portfolio structure, and both the level and riskiness of capital investment of the firm she controls, and in which the firm can be potentially constrained in its capital investment choices. Overall, our results indicate that owners’ portfolio underdiversification and firms’ financial constraints can affect firms’ resource allocation. Received May 3, 2017; editorial decision March 8, 2019 by Editor Francesca Cornelli. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

SSRN Electronic Journal, 2021

We find that environmental and social (ES) funds in non-ES families adopt a strategic voting patt... more We find that environmental and social (ES) funds in non-ES families adopt a strategic voting pattern: they are supportive of ES proposals that pass or fail by large margins, but unsupportive when their votes are likely to be pivotal. As such, these funds are able to show considerably high support for ES proposals on average, consistent with their stated objectives, while aligning with conflicting family preferences when their votes are likely to make a difference. This voting pattern is predominantly driven by actively managed funds. Our results highlight possible conflict of interest between ES funds and their families; showing that, when it matters the most, family preferences towards ES prevail over funds stated objectives, and perhaps with their fiduciary responsibilities.

Contrary to the central prediction of signaling models, changes in profits do not empirically fol... more Contrary to the central prediction of signaling models, changes in profits do not empirically follow changes in dividends. We show both theoretically and empirically that dividends signal safer, rather than higher, future profits. Using the Campbell (1991) decomposition, we are able to estimate expected cash flows from data on stock returns. Consistent with our model's predictions, cash-flow volatility changes in the opposite direction from that of dividend changes and larger changes in volatility come with larger announcement returns. We find similar results for share repurchases. Crucially, the data supports the prediction-unique to our model-that the cost of the signal is foregone investment opportunities. We conclude that payout policy conveys information about future cash flow volatility. Our methodology can be applied more generally to overcoming empirical problems in testing theories of corporate financing. JEL-Codes: G350.

SSRN Electronic Journal, 2022

This paper explores whether investors’ personal experience of climate change affects their voting... more This paper explores whether investors’ personal experience of climate change affects their voting behavior on environmental issues. We find that fund managers exposed to abnormally hot temperatures are significantly more likely to support environmental proposals. This increased support is stronger for proposals targeting firms with greater climate risk. The effect is more pronounced for funds that a priori tend to vote against environmental proposals (e.g., non-SRI funds, funds located in Republican states and climate sceptic areas). Overall, we show that fund managers’ experiences and increased awareness of climate change have a positive effect on their support for environmental policies.