Corporate Governance and Shareholder Initiatives: Empirical Evidence

Journal of Financial Economics, Vol. 42, pp. 365-395, 1996

31 Pages Posted: 1 Jul 1996 Last revised: 29 Jul 2011

Jonathan M. Karpoff

University of Washington - Michael G. Foster School of Business

Paul H. Malatesta

University of Washington - Michael G. Foster School of Business

Ralph A. Walkling

Drexel University - Lebow College of Business

Date Written: July 28, 2011

Abstract

Judging from prior writings, many researchers and practitioners think shareholder-initiated corporate governance proposals promote value-maximizing policies. These proposals are regarded as serving an important role in the governance of public corporations. Our findings, however, do not support this view. Shareholder-initiated corporate governance resolutions tend to target poorly performing firms, as measured by market-to-book ratio, operating return, and recent sales growth. This suggests that their sponsors seek improvements. We find little evidence, however, that proposals increase share values or spur performance improvements. The average wealth effects associated with shareholder-initiated corporate governance proposals are not significantly different from zero. Sales growth subsequently declines for firms receiving proposals relative to sales growth for control firms. And changes in operating return on sales are not significantly larger for proposal firms than their controls. We also find little evidence that shareholder proposals are associated with significant changes in firm policy. Turnover among chief executive officers is not significantly higher among firms that previously attracted proposals than for other firms matched by industry and size. We find that some of the firms attracting successful proposals changed managers or restructured operations, but such changes typically were motivated by external control threats, not the shareholder proposals. Even proposals receiving a majority of share votes are not associated systematically with significant changes in target firms' policies or stock values.

JEL Classification: G30

Suggested Citation

Karpoff, Jonathan M. and Malatesta, Paul H. and Walkling, Ralph A., Corporate Governance and Shareholder Initiatives: Empirical Evidence (July 28, 2011). Journal of Financial Economics, Vol. 42, pp. 365-395, 1996. Available at SSRN: https://ssrn.com/abstract=7551

Jonathan M. Karpoff (Contact Author)

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States
206-685-4954 (Phone)
206-221-6856 (Fax)

Paul H. Malatesta

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

Ralph August Walkling

Drexel University - Lebow College of Business ( email )

LeBow College of Business
Philadelphia, PA 19104
United States
(215) 895-4920 (Phone)
(215) 895-6119 (Fax)

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