How Does the Market React When Shareholders Lose Power?

Abstract

Using a decision made by a corporate vote tabulating firm, I examine how the market views shareholder proposals and whether shareholder empowerment creates value. I find that the type of proposal and its sponsor are important factors. The market’s reaction was negative for firms which were targets of proxy fights and firms with proposals from hedge funds. However, the market reacted positively for firms with social responsibility proposals and individual investor sponsored proposals. My results suggest that it is important to understand how shareholders get involved in corporate affairs to correctly gauge the benefits and costs of shareholder empowerment.

Keywords: shareholder proposals, shareholder empowerment, governance

JEL Classification: G34