40 Pages Posted: 6 Mar 2007 Last revised: 28 Jan 2017
Date Written: November 28, 2016
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: 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