Voting Methods for Director Election, Monitoring Costs, and Institutional Ownership

47 Pages Posted: 21 Jul 2018 Last revised: 22 Feb 2020

See all articles by Kee H. Chung

Kee H. Chung

State University of New York at Buffalo - School of Management

Choonsik Lee

University of Rhode Island

Date Written: September 11, 2019

Abstract

We show that firms that employ the majority voting method for director election exhibit higher institutional ownership than firms that employ the plurality voting method, especially after the 2010 amendment to NYSE Rule 452. Firms that adopt majority voting in a bylaw or charter exhibit increases in institutional ownership and share price. These results are consistent with our conjecture that institutional investors favor companies with majority voting and investors react favorably to the adoption of majority voting because it reduces management monitoring costs by improving the accountability of elected board members.

Keywords: Majority Voting; Monitoring Costs; Institutional Investors; Director Accountability

JEL Classification: G34; G38

Suggested Citation

Chung, Kee H. and Lee, Choonsik, Voting Methods for Director Election, Monitoring Costs, and Institutional Ownership (September 11, 2019). Journal of Banking and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3206074 or http://dx.doi.org/10.2139/ssrn.3206074

Kee H. Chung (Contact Author)

State University of New York at Buffalo - School of Management ( email )

Buffalo, NY 14260
United States
716-645-3262 (Phone)
716-645-3823 (Fax)

HOME PAGE: http://mgt.buffalo.edu/faculty/academic-departments/finance/faculty/kee-chung.html

Choonsik Lee

University of Rhode Island ( email )

Ballentine Hall
7 Lippitt Road
Kingston, RI 02881
United States

HOME PAGE: http://sites.google.com/site/choonsiklee79/

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