Dead Hand Proxy Puts and Shareholder Value

64 Pages Posted: 14 Mar 2018

See all articles by Sean J. Griffith

Sean J. Griffith

Fordham University School of Law; European Corporate Governance Institute (ECGI)

Natalia Reisel

Fordham University

Date Written: 2017

Abstract

We study the impact of Dead Hand Proxy Puts on shareholder value. Courts and commentators have characterized these terms as defenses against hedge fund activism that threaten to reduce firm value by entrenching underperforming managers and thereby increasing managerial agency costs. Our findings contradict this view. Using three court cases as a natural experiment, we find that shareholders do not react negatively to the inclusion of a Dead Hand Proxy Put in a firm’s loan agreements. Not only do Dead Hand Proxy Puts not destroy firm value, they may even preserve it by deterring activists who would seek to extract wealth from creditors and other nonshareholder constituencies. We develop the policy implications of these findings and offer a direction for the evolution of legal doctrine in this area.

Suggested Citation

Griffith, Sean J. and Reisel, Natalia, Dead Hand Proxy Puts and Shareholder Value (2017). University of Chicago Law Review, Vol. 84, No. 3, 2017; Fordham Law Legal Studies Research Paper No. 3139674. Available at SSRN: https://ssrn.com/abstract=3139674

Sean J. Griffith (Contact Author)

Fordham University School of Law ( email )

150 West 62nd Street
New York, NY 10023
United States

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Natalia Reisel

Fordham University ( email )

113 West 60th Street
New York, NY 10023
United States

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