Why Do Managers Fight Shareholder Proposals? Evidence from SEC No-Action Letter Decisions

47 Pages Posted: 8 Dec 2016 Last revised: 17 May 2017

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 Southern California - Marshall School of Business - Finance and Business Economics Department

Date Written: March 2017

Abstract

This paper studies whether corporate managers are pursuing their own interests, or defending shareholder interests, when they fight shareholder proposals. Managers argue that shareholder proposals are harmful to firm value because they are uninformed or opportunistic, while activists argue that managerial opposition is self-interested and proposals increase firm value by counteracting managerial agency problems. We examine stock price movements following SEC no-action letter decisions to provide evidence on managerial motives. Relative to previous studies that are limited by an inability to identify precisely when investors become aware of a proposal, our new approach is to study a well-defined event date at which the SEC makes an uncertain and expressly value-neutral decision to block or allow a proposal to go forward, allowing causal estimates of the value consequences. We find that over the period 2007-2016, the market reacts positively when the SEC permits a proposal to be omitted from the proxy, suggesting that investors agree with managers that these proposals are value-destroying. Investors appear to be most skeptical about proposals relating to corporate governance and the elements of the E-Index, and proposals targeted at high-profit firms are viewed as particularly damaging.

Suggested Citation

Matsusaka, John G. and Ozbas, Oguzhan and Yi, Irene, Why Do Managers Fight Shareholder Proposals? Evidence from SEC No-Action Letter Decisions (March 2017). 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 Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
Los Angeles, CA 90089
United States

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