A Theory of Shareholder Approval and Proposal Rights

38 Pages Posted: 14 Jan 2012 Last revised: 17 Jan 2017

John G. Matsusaka

University of Southern California - Marshall School of Business; USC Gould School of Law

Oguzhan Ozbas

University of Southern California - Marshall School of Business - Finance and Business Economics Department

Date Written: January 1, 2017

Abstract

This paper develops a theory of how shareholder decision rights over policies and directors affect firm value. The model highlights the distinction between the right to approve and the right to propose. The right to approve is weak; the right to propose is impactful but can help as well as hurt shareholders. Managers have an incentive to deter proposals from activist shareholders by adjusting corporate policy; one might conjecture that external pressure leads them to choose policies more appealing to other shareholders in order to reduce the electoral prospects of activist proposals. However, we show that when deterrence occurs, it is always by moving policy toward the position favored by the activist, even if this reduces shareholder wealth. Our analysis stresses the central role of voting uncertainty in determining the value consequences of shareholder rights and proxy access.

Keywords: Shareholder Proposals, Director Nominations, Proxy Access, Right to Propose and Approve, Cost of Shareholder Rights

Suggested Citation

Matsusaka, John G. and Ozbas, Oguzhan, A Theory of Shareholder Approval and Proposal Rights (January 1, 2017). AFA 2013 San Diego Meetings Paper; USC CLEO Research Paper Series No. C12-1; USC Law Legal Studies Paper No. 12-3; Marshall School of Business Working Paper No. FBE 02-12 . Available at SSRN: https://ssrn.com/abstract=1984606 or http://dx.doi.org/10.2139/ssrn.1984606

John G. Matsusaka

University of Southern California - Marshall School of Business ( email )

Department of Finance & Business Economics
Los Angeles, CA 90089
United States
213-740-6495 (Phone)
213-740-6650 (Fax)

USC Gould School of Law

699 Exposition Boulevard
Los Angeles, CA 90089
United States
213-740-6495 (Phone)

Oguzhan Ozbas (Contact Author)

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
Los Angeles, CA 90089
United States
213-740-0781 (Phone)
213-740-6650 (Fax)

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