Managerial Entrenchment and Information Production
50 Pages Posted: 13 Nov 2017 Last revised: 16 Nov 2018
Date Written: November 16, 2018
In this paper, we evaluate the effect of managerial entrenchment on corporate information production using the voting outcomes of shareholder-initiated proposals intended to mitigate managerial entrenchment. We focus on the proposals that are passed or rejected by a small margin of votes, which generate plausibly exogenous variations in managerial entrenchment. We find that a reduction in managerial entrenchment enhances corporate information production. The effects are stronger for firms with greater information asymmetries and severer agency frictions. Overall, the evidence is consistent with the view that reducing managerial entrenchment enhances corporate disclosure by aligning the incentives of managers and shareholders.
Keywords: Shareholder Activism, Shareholder Voting, Managerial Entrenchment, Corporate Information Production
JEL Classification: G14, G34, D82, M41
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