The Dark Side of Shareholder Activism: Evidence from CEO Turnovers
Posted: 2 Nov 2013
Date Written: October 31, 2013
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.
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