Governance Mechanisms and Effective Activism: Evidence from Shareholder Proposals on Poison Pills

40 Pages Posted: 6 Mar 2007 Last revised: 28 Jan 2017

Mireia Gine

IESE Business School, University of Navarra ; The University of Pennsylvania

Rabih Moussawi

Villanova University - Department of Finance; University of Pennsylvania - The Wharton School

John Sedunov III

Villanova University - Department of Finance

Date Written: November 28, 2016

Abstract

This paper studies the interaction between governance mechanisms and the effectiveness of shareholder activism by examining shareholder-initiated proposals on poison pills. We first explore shareholders’ impact on voting outcomes and how the relation between ownership structure and vote outcomes differs across two distinct governance regimes: democracies versus dictatorships, which are typically characterized with higher levels of restrictions on shareholder rights. Then, we examine the determinants of management responsiveness. We observe that dictatorships rally activism: ownership by mutual funds, independent investment advisors and pension funds are related to greater support of shareholder proposals against poison pills. Bank ownership is correlated with higher opposition to such proposals, as banks have economic incentives to side with management. In democracies, ownership by various shareholder groups is not as highly correlated with support for these proposals, suggesting perhaps that shareholders use other internal channels to voice concerns. In dictatorships, our results suggest that certain shareholders rely on annual meetings to openly voice discontent and pressure management, and that management is less likely to respond and take action following shareholder votes. Finally, among all institutional shareholders, management seems more likely to respond favorably in the presence of ownership by public pension funds.

Keywords: Corporate Governance, Poison Pills, Institutional Investors

JEL Classification: G34, G32, G23

Suggested Citation

Gine, Mireia and Moussawi, Rabih and Sedunov, John, Governance Mechanisms and Effective Activism: Evidence from Shareholder Proposals on Poison Pills (November 28, 2016). EFA 2007 Ljubljana Meetings Paper. Available at SSRN: https://ssrn.com/abstract=968425 or http://dx.doi.org/10.2139/ssrn.968425

Mireia Gine

IESE Business School, University of Navarra ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

The University of Pennsylvania ( email )

Philadelphia, PA 19104
United States

Rabih Moussawi (Contact Author)

Villanova University - Department of Finance ( email )

800 E Lancaster Ave
Bartley Hall, 1003
Villanova, PA 19085
United States

University of Pennsylvania - The Wharton School ( email )

United States

John Sedunov III

Villanova University - Department of Finance ( email )

800 Lancaster Ave.
Villanova, PA 19085
United States
610-519-4374 (Phone)

HOME PAGE: http://homepage.villanova.edu/john.sedunov/

Paper statistics

Downloads
458
Rank
48,328
Abstract Views
1,854