Industry Competition, Ownership Structure and Shareholder Activism

Abstract

We study shareholder activism through proxy proposals in the United States from 1997-2006. We investigate the determinants for being targeted and the corresponding voting results. By using a distinctive sample that also includes withdrawn and omitted proposals, we circumvent a selection bias towards those proposals that actually go to a vote. We hypothesize that a lack of industry competition in combination with higher managerial entrenchment increases the likelihood of being targeted. Our empirical results support this hypothesis. Concerning voting outcomes, we find that insiders’ equity holdings have a significant and negative correlation. Hence, managers actively vote against shareholder proposals.

Keywords: Shareholder proposals, shareholder activism, industry competition, relative governance, managerial entrenchment, shareholder base

JEL Classification: G32, G34