Can Shareholder Proposals Hurt Shareholders? Evidence from SEC No-Action Letter Decisions

58 Pages Posted: 8 Dec 2016 Last revised: 20 Apr 2020

See all articles by John G. Matsusaka

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

Irene Yi

University of Toronto

Date Written: April 1, 2019

Abstract

This paper studies SEC no-action letter decisions that determine whether companies can exclude shareholder proposals from their proxy statements. During the period 2007–2019, the market reacted positively when the SEC permitted exclusion, suggesting that investors viewed those proposals as value-reducing on average. We also find that a company’s stock price drifted down over time while waiting for an SEC decision, suggesting that challenged proposals imposed “distraction” costs on companies. The SEC’s decisions can be predicted by regulatory rules, but are also related to a proposal’s predicted votes—more popular types of proposals were less likely to be removed. We find no robust evidence that no-action letter decisions differed when the SEC was controlled by Democrats versus Republicans. Taken together, the evidence suggests that managers may be serving shareholder interests in opposing some proposals, and that the no-action letter process may be helping shareholders by weeding out value-reducing proposals.

Suggested Citation

Matsusaka, John G. and Ozbas, Oguzhan and Yi, Irene, Can Shareholder Proposals Hurt Shareholders? Evidence from SEC No-Action Letter Decisions (April 1, 2019). USC CLASS Research Paper No. CLASS17-4, Marshall School of Business Working Paper No. 17-7, Available at SSRN: https://ssrn.com/abstract=2881408 or http://dx.doi.org/10.2139/ssrn.2881408

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)

Irene Yi

University of Toronto ( email )

Toronto
Canada

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