Who Withdraws Shareholder Proposals and Does It Matter? An Analysis of Sponsor Identity and Pay Practices

Corporate Governance: An International Review (Forthcoming)

44 Pages Posted: 14 Jul 2011 Last revised: 19 Feb 2015

See all articles by Rob Bauer

Rob Bauer

Maastricht University

Frank Moers

Maastricht University School of Business and Economics; European Centre for Corporate Engagement (ECCE)

Michael Viehs

Oxford University Smith School of Enterprise and the Environment; European Centre for Corporate Engagement (ECCE)

Multiple version iconThere are 2 versions of this paper

Date Written: February 18, 2015

Abstract

Manuscript Type: Empirical

Research Question/Issue: We study more than 12,000 shareholder proposals that were filed to S&P1500 companies from 1997 to 2009, and investigate the determinants of proposal withdrawal by the sponsoring shareholder. We also study the effectiveness of withdrawn proposals as a corporate governance device.

Research Findings/Insights: We find that proposals filed by influential investors are more likely to be withdrawn than proposals filed by private investors. Our empirical results show that institutional ownership (in particular by long-term, passively investing institutions) is positively related to a proposal’s withdrawal likelihood if the sponsoring shareholder is an institutional investor. We also document a negative relation between CEO ownership and the withdrawal likelihood. This effect is most pronounced for corporate governance proposals. We also show that withdrawn proposals on executive compensation change subsequent corporate pay practices.

Theoretical/Academic Implications: Our paper provides the first comprehensive evidence on withdrawn shareholder proposals. We show that withdrawn proposals are a strong and important category of proposals because managers proactively prevent them from being put to a vote. Hence, our results imply that researchers should also account for withdrawn shareholder proposals when making inferences about the effectiveness of proxy proposals.

Practitioner/Policy Implications: Our empirical evidence points to the importance of withdrawn shareholder proposals as a governance mechanism. Managers try to protect their own power and reputation by preventing filed shareholder proposals from being put to a vote during the annual general meeting: They enter into private negotiations with the sponsors of the proposals to accomplish a withdrawal.

Note: An earlier version of this paper was circulated under the title “The Determinants of Withdrawn Shareholder Proposals”.

Keywords: Corporate governance, shareholder proposals, private negotiations, institutional ownership

JEL Classification: G3, G34

Suggested Citation

Bauer, Rob and Moers, Frank and Viehs, Michael, Who Withdraws Shareholder Proposals and Does It Matter? An Analysis of Sponsor Identity and Pay Practices (February 18, 2015). Corporate Governance: An International Review (Forthcoming). Available at SSRN: https://ssrn.com/abstract=1885392 or http://dx.doi.org/10.2139/ssrn.1885392

Rob Bauer

Maastricht University ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands
+31 43 3883871 (Phone)

Frank Moers

Maastricht University School of Business and Economics ( email )

Maastricht

HOME PAGE: http://www.maastrichtuniversity.nl/sbe

European Centre for Corporate Engagement (ECCE) ( email )

Tongersestraat 53
Maastricht, 6211LM
Netherlands

Michael Viehs (Contact Author)

Oxford University Smith School of Enterprise and the Environment ( email )

South Parks Road
Oxford, OX1 3QY
United Kingdom
+44-1865-614938 (Phone)

European Centre for Corporate Engagement (ECCE) ( email )

Tongersestraat 53
Maastricht, 6211LM
Netherlands

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