Proactive Investor Outreach: Evidence from Proxy Fights and Board Interlocks

Abstract

This paper examines whether firms increase investor relations (IR) activities when their directors experience proxy fights at other firms. Using proxy fights at a target firm as a laboratory, we find that interlocked firms that share directors with the target firm increase IR activities following proxy fights, compared to control firms without such board connections. The effect is greater when the target firm loses the proxy fight. Moreover, the effect is stronger for interlocked firms that are held more by long-term institutional investors, have fewer anti-takeover provisions to combat activism, or exhibit lower pre-existing levels of IR activities. The increase in IR activities at interlocked firms does not increase the information delivered to shareholders but reduces the likelihood of proxy fights at these firms. Overall, our findings suggest that firms proactively reassess the importance of IR in ensuring long-term shareholder relationships and adjust their IR efforts to prevent shareholder activism.

Keywords: investor relations; investor outreach; directors; shareholder engagement; proxy contests; board interlocks; staggered difference-in-differences

JEL Classification: M41