Does the Director Election System Matter? Evidence from Majority Voting

60 Pages Posted: 8 Jul 2011 Last revised: 31 May 2013

Yonca Ertimur

University of Colorado at Boulder - Department of Accounting

Fabrizio Ferri

Columbia Business School - Accounting, Business Law & Taxation

David Oesch

University of Zurich

Date Written: May 30, 2013

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 (May 30, 2013). 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)

Columbia Business School - Accounting, Business Law & Taxation ( email )

3022 Broadway
New York, NY 10027
United States

David Oesch

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

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