Shareholder Activism Through the Proxy Process

45 Pages Posted: 25 Aug 2009 Last revised: 28 Jan 2011

Luc Renneboog

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

Date Written: December 15, 2009

Abstract

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.

Keywords: shareholder activism, shareholder proposals, corporate governance, sample selection

JEL Classification: G34

Suggested Citation

Renneboog, Luc and Szilagyi, Peter G., Shareholder Activism Through the Proxy Process (December 15, 2009). CentER Discussion Paper Series No. 2009-65; ECGI - Finance Working Paper No. 275/2010. Available at SSRN: https://ssrn.com/abstract=1460578 or http://dx.doi.org/10.2139/ssrn.1460578

Luc Renneboog (Contact Author)

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Warandelaan 2
5000 LE Tilburg
Netherlands
+13 31 466 8210 (Phone)
+13 31 466 2875 (Fax)

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Tilburg Law and Economics Center (TILEC)

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Peter G. Szilagyi

CEU Business School - Central European University ( email )

Nador utca 9.
Budapest, 1051
Hungary
+36-1-887-5092 (Phone)
+36-1-887-5005 (Fax)

HOME PAGE: http://business.ceu.edu/directory-of-faculty-and-staff/163-Peter-Szilagyi

Judge Business School - University of Cambridge ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom
+44-1223-764-026 (Phone)
+44-1223-339-701 (Fax)

HOME PAGE: http://www.jbs.cam.ac.uk/faculty-research/fellows-associates-a-z/peter-g-szilagyi/

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