Shareholder Proposals in the New Millennium: Shareholder Support, Board Response, and Market Reaction

33 Pages Posted: 13 Dec 2005 Last revised: 5 May 2017

See all articles by James F. Cotter

James F. Cotter

Wake Forest University School of Business

Randall S. Thomas

Vanderbilt University - Law School; European Corporate Governance Institute (ECGI)

Abstract

Although the owners of publicly traded companies have had the right to offer shareholder proposals using Rule 14a-8 for several decades, the effectiveness of the rule has been frequently questioned because few of these proposals received substantial support from other shareholders and even fewer have been implemented by boards. Using new data from the 2002-2004 proxy seasons, we analyze shareholder voting patterns on these proposals, board reactions to them, and market responses. We find some big changes from earlier periods: many more proposals are receiving majority shareholder support during our sample period relative to earlier studies, and this support has translated into directors implementing more of the actions called for by shareholders. In particular, boards are increasingly willing to remove important anti-takeover defenses, such as the classified board and poison pill, in response to shareholders' requests, something rarely seen in the past. Despite the increase in support for shareholder proposals and board action in response, we find small and insignificant stock market reaction. We conclude that shareholder proposals under Rule 14a-8 have an emerging role in reducing agency costs by increasing director responsiveness to shareholder concerns to open the market more fully to corporate control.

Keywords: shareholder, corporate governance, investors, market performance

Suggested Citation

Cotter, James F. and Thomas, Randall S., Shareholder Proposals in the New Millennium: Shareholder Support, Board Response, and Market Reaction. 13 Journal of Corporate Finance 368 (2007); Vanderbilt Law and Economics Research Paper No. 05-30. Available at SSRN: https://ssrn.com/abstract=868652

James F. Cotter

Wake Forest University School of Business ( email )

Farrell Hall 384
P.O. Box 7659
Winston-Salem, NC 27109-7659
United States
336-758-7220 (Phone)

Randall S. Thomas (Contact Author)

Vanderbilt University - Law School ( email )

131 21st Avenue South
Nashville, TN 37203-1181
United States

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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