Shareholder Activism Through the Proxy Process
Tilburg University - Department of Finance; European Corporate Governance Institute (ECGI); Tilburg Law and Economics Center (TILEC)
Peter G. Szilagyi
CEU Business School - Central European University; Judge Business School - University of Cambridge
December 15, 2009
TILEC Discussion Paper No. 2009-031
CentER Discussion Paper Series No. 2009-65
ECGI - Finance Working Paper No. 275/2010
This paper provides evidence on the corporate governance role of shareholder-initiated proxy proposals. Previous studies debate over whether activists use proxy proposals to discipline firms or to simply advance their self-serving agendas, and whether proxy proposals are effective at all in addressing governance concerns. Using the largest sample yet examined as well as extensive controls for governance quality, we find that activists use the proxy process as a disciplinary mechanism, and as such are valuable monitoring agents. Moreover, proposal announcements in the proxy statements have positive stock price effects, and both the market and the voting shareholders respond as much to the target firm’s governance quality as to the proposal’s objective and sponsoring shareholder. We address the endogeneity of target selection and proposal success using sample selection models. We conclude that shareholder proposals have nontrivial control benefits, countering arguments that they should be restricted by the SEC.
Number of Pages in PDF File: 45
Keywords: shareholder activism, shareholder proposals, corporate governance, sample selection
JEL Classification: G34
Date posted: August 25, 2009 ; Last revised: January 28, 2011
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