Measuring Management Insulation from Shareholder Pressure

51 Pages Posted: 3 Nov 2012 Last revised: 22 Jun 2016

Daniel Ferreira

London School of Economics - Department of Finance; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

David Kershaw

London School of Economics - Law Department

Tom Kirchmaier

London School of Economics - Centre for Economic Performance; Copenhagen Business School

Edmund‐Philipp Schuster

London School of Economics - Law Department

Date Written: June 13, 2016

Abstract

We propose a management insulation measure based on charter, bylaw, and corporate law provisions that make it difficult for shareholders to oust a firm’s management. Unlike the existing alternatives, our measure considers the interactions between different provisions. We illustrate the usefulness of our measure with an application to the banking industry. We find that banks in which managers were more insulated from shareholders in 2003 were significantly less likely to be bailed out in 2008/09. These banks were also less likely to be targeted by activist shareholders, as proxied by 13D SEC filings. By contrast, popular alternative measures of insulation -- such as staggered boards and the Entrenchment Index -- fail to predict both bailouts and shareholder activism.

Keywords: Corporate Governance, Bank Bailouts

Suggested Citation

Ferreira, Daniel and Kershaw, David and Kirchmaier, Tom and Schuster, Edmund‐Philipp, Measuring Management Insulation from Shareholder Pressure (June 13, 2016). LSE Legal Studies Working Paper No. 01/2016; ECGI - Finance Working Paper No. 345/2013; Asian Finance Association (AsFA) 2013 Conference. Available at SSRN: https://ssrn.com/abstract=2170392 or http://dx.doi.org/10.2139/ssrn.2170392

Daniel Ferreira (Contact Author)

London School of Economics - Department of Finance ( email )

Houghton Street
London, WC2A 2AE
United Kingdom
(+44) 20 7955 7544 (Phone)

HOME PAGE: http://personal.lse.ac.uk/FERREIRD/

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

David Kershaw

London School of Economics - Law Department ( email )

Houghton Street
London WC2A 2AE, WC2A 2AE
United Kingdom

Tom Kirchmaier

London School of Economics - Centre for Economic Performance ( email )

Houghton Street
London, WC2A 2AE
United Kingdom
+44 207 955 6854 (Phone)

HOME PAGE: http://https://sites.google.com/site/tomkirchmaier/home

Copenhagen Business School ( email )

Porcelænshaven 24A, 3rd floor
Copenhagen
Denmark

Edmund-Philipp Schuster

London School of Economics - Law Department ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

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