The Dark Side of Shareholder Activism: Evidence from CEO Turnovers

Posted: 5 Oct 2013

See all articles by Laurent Bach

Laurent Bach

ESSEC Business School - Finance Department; Swedish House of Finance

Daniel Metzger

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM); European Corporate Governance Institute (ECGI); London School of Economics & Political Science (LSE) - Financial Markets Group

Multiple version iconThere are 3 versions of this paper

Date Written: April 4, 2013

Abstract

Strong corporate governance may bear some costs to shareholders when it leads to the departure of value-enhancing CEOs out of disagreement with the board. We test this hypothesis using the passing of shareholder proposals related to anti-takeover provisions in closely contested votes as a natural experiment. We measure the quality of a CEO departure by the cumulative abnormal returns observed around the announcement of such an event. We find that the approval of such proposals by general assemblies very significantly increases the likelihood that the current CEO leaves at the expense of firm value. Moreover, CEO departures provoked by stronger governance are not followed by an improvement in operating performance. We interpret this as evidence that the indiscriminate lifting of anti-takeover provisions is detrimental to shareholder value due to its adverse impact on the allocation of CEOs to firms.

Keywords: Shareholder Activism, CEO Turnovers, Shareholder P

Suggested Citation

Bach, Laurent and Metzger, Daniel, The Dark Side of Shareholder Activism: Evidence from CEO Turnovers (April 4, 2013). Available at SSRN: https://ssrn.com/abstract=2336120 or http://dx.doi.org/10.2139/ssrn.2336120

Laurent Bach (Contact Author)

ESSEC Business School - Finance Department ( email )

Avenue Bernard Hirsch
BP 105 Cergy Cedex, 95021
France

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Daniel Metzger

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM) ( email )

P.O. Box 1738
Room T08-21
3000 DR Rotterdam, 3000 DR
Netherlands

European Corporate Governance Institute (ECGI) ( email )

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

London School of Economics & Political Science (LSE) - Financial Markets Group ( email )

Houghton Street
London WC2A 2AE
United Kingdom

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