Do Words Have Power? Shareholder Communication through Proxy Exempt Solicitations

Abstract

This study uses a novel dataset to analyze proxy exempt solicitations (ES) as a means of shareholder communication outside formal proxy rules. The results indicate that ES can effectively reveal widespread views and are accessed by investors and investment banks at high rates. The market reacts positively to ES filings, and they are associated with improved terms for management-proposed M&A, as well as increased takeover activity, forced CEO turnover, and "no confidence" votes. Overall, these results indicate that exempt solicitations can enhance shareholder communication through increased attention and improved voting, offering a cost-effective alternative to proxy contests.

Keywords: Corporate Governance, Shareholder Communication, Shareholder Engagement, Information Dissemination, Shareholder Activism, Shareholder Voting, Mergers, Proxy Process

JEL Classification: K22, G34, G23