Managerial Response Under Shareholder Empowerment: Evidence from Majority Voting Legislation Changes
48 Pages Posted: 6 Aug 2018
Date Written: July 24, 2018
This paper studies how managers react to the empowerment of shareholders in governance provisions. A staggered legislative change that makes shareholder-initiated majority-voting proposals binding is followed by a 40% increase in the submission of management-initiated majority-voting proposals. Management adopts provisions that crowd out shareholder proposals pre-empting shareholder initiated changes and giving management control over future amendments of voting rules. The remaining firms, experience more negative market return reactions in close-call votes of shareholder proposals. This result indicates that managers resist the implementation of majority-voting standards precisely in those firms where it would be more value-destroying.
Keywords: Corporate Governance, Majority Voting, Shareholder Activism, Management Fronting
JEL Classification: G34, G14
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