The researchers said they would have expected lending to decrease over the record date as beneficial owners of the securities recall them to vote their shares.
They also found that shares on loan are typically tendered in favor of shareholder proposals and against management proposals.
"My feeling is this is being used as a mechanism by large institutions to put pressure on management, potentially," said Susan Christoffersen, assistant professor of finance at McGill University, Montreal, and one of the study's authors.
The other authors are: Adam V. Reed, assistant professor of finance at the University of North Carolina at Chapel Hill's Kenan-Flagler Business School; and Christopher C. Geczy and David K. Musto, both assistant professors of finance at the University of Pennsylvania, Philadelphia.
"If they really wanted to push something through, this would be a mechanism for them to get more voting power," Ms. Christoffersen said. She cautioned, however, that the study did not prove this conclusion because the data she and her colleagues analyzed were anonymous.
Ms. Christoffersen had suggested that pension funds were among those borrowing stock solely to vote proxies. But Cynthia Richson, corporate governance officer at the $64.5 billion Ohio Public Employees Retirement System, Columbus, said no.
"What she's completely missing is that funds like mine and CalPERS (the California Public Employees' Retirement System, Sacramento) and others are doing it (securities lending) for the incremental revenue," Ms. Richson said. "Our incremental revenue from securities lending was $19 million" in 2004.
"In this low-return environment, securities lending is another investment strategy," she said.
Patrick McGurn, executive vice president and director-corporate programs at Rockville, Md.-based Institutional Shareholder Services Inc., agreed with Ms. Richson. Institutions — even activist ones — are more interested in securities lending as a source of return than as a way to influence the companies they own, he said.
"Share lending has become a major source of portfolio alpha for a lot of firms and funds out there. It's literally free money," he said.
Kathy H. Rulong, senior vice president and executive director of Mellon Global Securities Lending, Pittsburgh, said she has never seen a public pension fund — the pension funds most likely to be activist investors — borrowing securities. She also noted that public funds are not allowed to short stock, which is one of the main reasons firms borrow stock.
"I don't know why they would be borrowing," she said, adding that "quite a long time ago," Mellon had some corporate pension fund clients interested in shorting securities. In that case, she said the firm told the clients they had to handle borrowing through a broker/dealer, the traditional means of borrowing securities.
She added that the proxy record date is often the same record date for dividend payments, and that increased lending over that date could be part of a dividend capture strategy.
But in some cases, she said, hedge funds "may want to take some control and influence the vote."
Mellon only lends to broker/dealers, but Ms. Rulong said in conversations with broker/dealer clients "there is consistent talk about hedge funds and the growth in hedge funds and their (borrowing) needs." She said it was clear hedge funds were increasing demand for securities to borrow.
Mr. Reed, one of the authors, said the research showed vote trading is higher for poor-performing companies, which suggests at least some shareholders look to the lending market to drive change.
"Poor performers would be where you start looking for management doing a bad job," he said. "That's when these voting issues become more important."
Mr. McGurn said while borrowing stock to capture the proxy voting right is not illegal, the practice can be abused, and institutions seeking to use the proxy for the good of shareholders and the company itself "would lose the moral high ground" by borrowing shares to influence the vote.
"They could do that. But are they? To the best of my knowledge, no," Mr. McGurn said.