Does the Director Election System Matter? Evidence from Majority Voting

60 Pages Posted: 8 Jul 2011 Last revised: 29 May 2024

See all articles by Yonca Ertimur

Yonca Ertimur

University of Colorado at Boulder - Department of Accounting

Fabrizio Ferri

University of Miami - Miami Business School; European Corporate Governance Institute

David Oesch

University of Zurich

Date Written: April 8, 2014

Abstract

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.

Keywords: majority voting, director elections, shareholder votes, shareholder proposals, director turnover

JEL Classification: G34

Suggested Citation

Ertimur, Yonca and Ferri, Fabrizio and Oesch, David, Does the Director Election System Matter? Evidence from Majority Voting (April 8, 2014). Contemporary Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1880974 or http://dx.doi.org/10.2139/ssrn.1880974

Yonca Ertimur

University of Colorado at Boulder - Department of Accounting ( email )

419 UCB
Boulder, CO 80309-0419
United States

Fabrizio Ferri (Contact Author)

University of Miami - Miami Business School ( email )

Coral Gables, FL 33146-6531
United States

European Corporate Governance Institute ( email )

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

David Oesch

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

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