When Managers Bypass Shareholder Approval of Board Appointments: Evidence from the Private Security Market

46 Pages Posted: 29 Dec 2005 Last revised: 26 Sep 2008

See all articles by Matteo P. Arena

Matteo P. Arena

Marquette University

Stephen P. Ferris

University of Missouri at Columbia - Department of Finance

Abstract

This paper investigates the influence of managerial entrenchment on private placements by examining the firm's decision to appoint representatives of the private investors to the board without shareholder approval. By analyzing a sample of U.S. firms that appoint directors in combination with private offerings between 1995 and 2000, we find that firms with greater managerial entrenchment are more likely to bypass shareholder approval. Firms that bypass shareholders are less likely to appoint independent directors or to elect one of these directors as chairman. We also show that the market reacts more positively to the private offering announcement when the firm submits its board candidates for shareholder approval. Further, firms that bypass approval underperform compared to firms that obtain it. Overall our findings suggest that managers avoid shareholder approval to perpetuate entrenchment.

Keywords: Shareholder voting, boards of directors, private placement

JEL Classification: G32, G34, K22

Suggested Citation

Arena, Matteo P. and Ferris, Stephen P., When Managers Bypass Shareholder Approval of Board Appointments: Evidence from the Private Security Market. Journal of Corporate Finance, 2007. Available at SSRN: https://ssrn.com/abstract=872548

Matteo P. Arena (Contact Author)

Marquette University ( email )

College of Business Administration
P.O. Box 1881
Milwaukee, WI 53201-1881
United States

Stephen P. Ferris

University of Missouri at Columbia - Department of Finance ( email )

214 Middlebush Hall
Columbia, MO 65211
United States
573-882-6272 (Phone)
573-884-6296 (Fax)

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