Can Shareholder Proposals Hurt Shareholders? Evidence from SEC No-Action Letter Decisions
49 Pages Posted: 8 Dec 2016 Last revised: 13 Aug 2017
Date Written: August 1, 2017
This paper studies the market reaction to SEC no-action letter decisions in order to produce well-identified estimates of the value consequences of shareholder proposals. Whereas previous research is limited by an inability to identify the date when investors become aware of a proposal, our approach employs a well-defined event date at which the SEC makes an uncertain and expressly value-neutral decision to block a proposal or allow it to proceed to a vote. We find that over the period 2007-2016, the market reacted positively when the SEC permitted a proposal to be excluded from the proxy statement, suggesting that the market viewed these proposals as harmful to shareholders. Investors appear to have been most skeptical about proposals relating to corporate governance and the elements of the E-Index, and proposals targeted at high-profit firms. The evidence casts doubt on the assumption that proposal rights can only help and never hurt shareholders.
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