The Disciplinary Effects of Proxy Contests

Management Science, Forthcoming

45 Pages Posted: 8 Nov 2010 Last revised: 31 Jul 2015

See all articles by Vyacheslav Fos

Vyacheslav Fos

Boston College - Department of Finance; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Date Written: July 1, 2015


Using a manually collected data set of all proxy contests from 1994 through 2012, I show that proxy contests play an important role in hostile corporate governance. Target shareholders benefit from proxy contests: the average abnormal returns reach 6.5% around proxy contest announcements. Proxy contests that address firms' business strategies and undervaluation are most beneficial for shareholders. In contrast, proxy contests that aim at changing capital structure and governance do not lead to higher firm values. Relative to matching firms, future targets are smaller, they have higher stock liquidity, higher institutional and activist ownership, lower leverage and market valuation, and higher investments. While most of these characteristics predict proxy contests in time-series, prior to proxy contests targets also experience poor stock performance, decreases in investments, increases in cash reserves and payouts to shareholders, and increases in management's entrenchment. These changes in corporate policies are consistent with targets' attempts to affect the probability of a proxy contest.

Keywords: Proxy Contests, Shareholder Activism, Agency problem

JEL Classification: G34, G38

Suggested Citation

Fos, Vyacheslav, The Disciplinary Effects of Proxy Contests (July 1, 2015). Management Science, Forthcoming, Available at SSRN: or

Vyacheslav Fos (Contact Author)

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

Centre for Economic Policy Research (CEPR) ( email )

United Kingdom

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