Shareholder Activism and Voluntary Disclosure Initiation: The Case of Political Spending
Posted: 1 Aug 2018
Date Written: June 6, 2018
Demand for disclosures on environmental, social and governance (ESG) issues has increased dramatically. Using corporate political spending disclosures as our setting, we conduct a detailed inquiry of 541 political spending-related shareholder proposals from 2004 to 2012 to highlight the role of shareholder activism as a mechanism to motivate ESG disclosure. Unlike earlier studies, we examine both proposals that went to a vote and proposals that were withdrawn by the activist, allowing us to assess more comprehensively the success of shareholder activism. We find that 20% of firms targeted by disclosure proposals begin disclosing in the subsequent year, although implementation rates vary by proposal type - 8% for proposals subject to a vote versus 56% for proposals withdrawn. The sponsor is also important: unions and public pension funds are less likely than other activists to target firms with agency problems, are less successful in having proposals withdrawn, and the implementations they obtain are viewed more negatively by the broader investor base. Our findings highlight shareholder proposals as one mechanism through which investors can successfully express their preferences for corporate disclosure policies. Given activists' long-standing interest in environmental and social disclosure policies, we believe our findings generalize to a broader set of ESG disclosures.
Keywords: shareholder activism, corporate political spending, disclosure, environmental, social, governance issues
JEL Classification: G34, H32, M41
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