Does the Director Election System Matter? Evidence from Majority Voting
University of Colorado at Boulder - Department of Accounting
Columbia Business School - Accounting, Business Law & Taxation
University of Zurich
May 30, 2013
We examine the effect of a change in the director election system — the switch from a plurality voting standard to a more stringent standard known as majority voting (MV). Using a regression discontinuity design, we document abnormal returns of 1.43-1.60% around annual meeting dates where shareholder proposals to adopt MV are voted upon, suggesting that shareholders perceive the adoption of MV as value-enhancing. We document an increase in boards’ responsiveness to shareholders at MV firms. In particular, relative to a propensity score-matched control sample, firms adopting MV exhibit an increase in the rate of implementation of shareholder proposals supported by a majority vote and in the responsiveness to votes withheld from directors up for election. Instead, we do not find a relation between votes withheld and subsequent director turnover, regardless of the election standard. Overall, it appears that, rather than a channel to remove specific directors, director elections are viewed by shareholders as a means to obtain specific governance changes and that, in this respect, their ability to obtain such changes is stronger under a MV standard.
Number of Pages in PDF File: 60
Keywords: majority voting, director elections, shareholder votes, shareholder proposals, director turnover
JEL Classification: G34
Date posted: July 8, 2011 ; Last revised: May 31, 2013
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