A Theory of Shareholder Approval and Proposal Rights
John G. Matsusaka
University of Southern California - Marshall School of Business; USC Gould School of Law
University of Southern California - Marshall School of Business - Finance and Business Economics Department
AFA 2013 San Diego Meetings Paper
USC CLEO Research Paper Series No. C12-1
Marshall School of Business Working Paper No. FBE 02-12
USC Law Legal Studies Paper No. 12-3
This paper develops a theory to study how giving shareholders the right to approve and propose policies or directors affects firm value. The model highlights the distinction between the right to approve and the right to propose. The right to approve is weak; the right to propose is impactful but can help as well as hurt shareholders. Managers have an incentive to deter proposals from activist shareholders by adjusting corporate policy; one might conjecture that external pressure leads them to choose policies more appealing to other shareholders in order to reduce the electoral prospects of activist proposals. However, we show that when deterrence occurs, it is always by moving policy toward the position favored by the activist, even if this reduces shareholder wealth. Our analysis stresses the central role of voting uncertainty in determining the value consequences of shareholder rights and proxy access.
Number of Pages in PDF File: 35
Keywords: Shareholder Proposals, Director Nominations, Proxy Access, Right to Propose and Approve, Cost of Shareholder Rights
Date posted: January 14, 2012 ; Last revised: March 29, 2016
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