Can Shareholder Proposals Hurt Shareholders? Evidence from SEC No-Action Letter Decisions
57 Pages Posted: 8 Dec 2016 Last revised: 18 Apr 2019
Date Written: April 2019
This paper studies the market reaction to SEC no-action letter decisions that determine whether a shareholder proposal can be excluded from the proxy statement. We find that over the period 2007-2018, the market reacted positively when the SEC permitted exclusion. Investors appear to have been most skeptical about proposals related to corporate governance and proposals at high-profit firms, suggesting that investors believe some proposals can hurt shareholders by disrupting companies that are already performing well. Disruption appears to come less from fear of the proposal being approved than from distraction of management and the possibility of side deals with activists. The evidence is compatible with the view that managerial resistance is based on a genuine concern that proposals can harm firm value, and suggests that the no-action letter process may increase value by sorting out value-destroying proposals.
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