Managerial Response to Shareholder Empowerment: Evidence from Majority Voting Legislation Changes

54 Pages Posted: 6 Aug 2018 Last revised: 23 Sep 2019

See all articles by Vicente Cuñat

Vicente Cuñat

London School of Economics & Political Science (LSE) - Financial Markets Group

Yiqing Lü

New York University (NYU) - New York University (NYU), Shanghai

Hong Wu

Hong Kong Polytechnic University - School of Accounting and Finance

Date Written: July 24, 2018

Abstract

This paper studies how managers react to shareholder empowerment vis-à-vis governance provisions. We show that a staggered legislative change that increases noncompliance costs in the implementation of shareholder-initiated majority voting proposals is followed by an increase in the submission of management-initiated proposals. Management adopts provisions that crowd out shareholder-initiated proposals, pre-empt shareholder-initiated changes and give management control over future voting standard amendments. The remaining firms experience a more negative market return reaction in response to close-call votes on shareholder-initiated proposals. The results jointly indicate that managers seek to preserve shareholder-value by moderating the implementation of majority voting standards.

Keywords: Corporate Governance, Majority Voting, Shareholder Activism, Management Fronting

JEL Classification: G34, G14

Suggested Citation

Cuñat, Vicente and Lü, Yiqing and Wu, Hong, Managerial Response to Shareholder Empowerment: Evidence from Majority Voting Legislation Changes (July 24, 2018). European Corporate Governance Institute - Finance Working Paper No. 622/2019. Available at SSRN: https://ssrn.com/abstract=3219188 or http://dx.doi.org/10.2139/ssrn.3219188

Vicente Cuñat

London School of Economics & Political Science (LSE) - Financial Markets Group ( email )

Houghton Street
London WC2A 2AE
United Kingdom

HOME PAGE: http://www.vicentecunat.com

Yiqing Lü (Contact Author)

New York University (NYU) - New York University (NYU), Shanghai ( email )

1555 Century Ave
Pudong
Shanghai, Shanghai 200122
China

HOME PAGE: http://www.yiqinglue.com/

Hong Wu

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom
Kowloon
Hong Kong

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