Hostname: page-component-848d4c4894-x5gtn Total loading time: 0 Render date: 2024-05-06T15:39:45.632Z Has data issue: false hasContentIssue false
  • English
  • Français

Governance Changes through Shareholder Initiatives: The Case of Proxy Access

Published online by Cambridge University Press:  30 June 2020

Tara Bhandari Open the ORCID record for Tara Bhandari [Opens in a new window] ,
Peter Iliev  and
Jonathan Kalodimos
Tara Bhandari*
Affiliation:
U.S. Securities and Exchange Commission bhandarit@sec.gov
Peter Iliev
Affiliation:
Pennsylvania State University Smeal College of Businesspgi1@psu.edu
Jonathan Kalodimos
Affiliation:
Oregon State University College of Businessjonathan.kalodimos@oregonstate.edu
*
bhandarit@sec.gov (corresponding author)
Get access Rights & Permissions [Opens in a new window]

Abstract

We study a regulatory change that led to over 300 shareholder proposals to instate proxy access and more than 250 firms adopting proxy access from 2012 to 2016. The firms expected to benefit most from proxy access have the most positive market reaction to receiving a proposal, but adoptions are not concentrated at these firms. We find that proposing and voting shareholders do not discriminate between firms that would or would not benefit and that management resists proxy access at the firms that stand to benefit most. This process results in the concentration of adoptions at large, already-well-governed firms.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 56 , Issue 5 , August 2021 , pp. 1590 - 1621
Copyright
© The Author(s), 2020. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

The U.S. Securities and Exchange Commission (SEC), as a matter of policy, disclaims responsibility for any private publication or statement by any of its employees. The views expressed herein are those of the authors and do not necessarily reflect the views of the SEC or of the authors’ colleagues on the staff of the SEC. We greatly appreciate the valuable feedback received from Daniel Bergstresser, Jay Cai (the referee), Jonathan Cohn, Peter Cziraki, Matthew Denes, Craig Doidge, Alexander Dyck, Laura Fields, Stuart Gillan, Matthew Gustafson, John Hackney, Michelle Lowry, Nadya Malenko, Chester Spatt, Laura Starks, Ralph Walkling, Michael Weisbach, and Tracie Woidtke; participants at the 2017 Western Finance Association Conference, the 2016 Society for Financial Studies (SFS) Finance Cavalcade, and the 2016 Drexel Corporate Governance Conference; and participants in seminars at Oregon State University, Pennsylvania State University, the University of Delaware, the University of Georgia, the University of Nebraska–Lincoln, the University of Oregon, the University of Tennessee Neel Corporate Governance Center, the University of Texas at Austin, and the SEC.

References

Ai, C., and Norton, E. C.. “Interaction Terms in Logit and Probit Models.” Economics Letters, 80 (2003), 123–129.CrossRefGoogle Scholar
Akyol, A. C.; Lim, W. F.; and Verwijmeren, P.. “Governance Characteristics and the Market Reaction to the SEC’s Proxy Access Rule.” International Review of Finance, 12 (2012a), 175–195.CrossRefGoogle Scholar
Akyol, A. C.; Lim, W. F.; and Verwijmeren, P.. “Shareholders in the Boardroom: Wealth Effects of the SEC’s Proposal to Facilitate Director Nominations.” Journal of Financial and Quantitative Analysis, 47 (2012b), 1029–1057.CrossRefGoogle Scholar
Bach, L., and Metzger, D.. “How Close Are Close Shareholder Votes?” Review of Financial Studies , 32 (2019), 3183–3214.CrossRefGoogle Scholar
Bebchuk, L.; Cohen, A.; and Ferrell, A.. “What Matters in Corporate Governance?” Review of Financial Studies, 22 (2009), 783–827.CrossRefGoogle Scholar
Bebchuk, L. A., and Fried, J. M.. “Executive Compensation as an Agency Problem.” Journal of Economic Perspectives, 17 (2003), 71–92.CrossRefGoogle Scholar
Becker, B.; Bergstresser, D.; and Subramanian, G.. “Does Shareholder Proxy Access Improve Firm Value? Evidence from the Business Roundtable’s Challenge.” Journal of Law and Economics, 56 (2013), 127–160.CrossRefGoogle Scholar
Buchanan, B.; Netter, J.; Poulsen, A.; and Yang, T.. “Shareholder Proposal Rules and Practice: Evidence from a Comparison of the United States and United Kingdom.” American Business Law Journal, 49 (2012), 739–803.CrossRefGoogle Scholar
Bushee, B. J. “Do Institutional Investors Prefer Near-Term Earnings over Long-Run Value?” Contemporary Accounting Research, 18 (2001), 207–246.CrossRefGoogle Scholar
Cai, J.; Garner, J. L.; and Walkling, R. A.. “A Paper Tiger? An Empirical Analysis of Majority Voting.” Journal of Corporate Finance, 21 (2013), 119–135.CrossRefGoogle Scholar
Cai, J., and Walkling, R. A.. “Shareholders’ Say on Pay: Does It Create Value?” Journal of Financial and Quantitative Analysis, 46 (2011), 299–339.CrossRefGoogle Scholar
Campbell, J. T.; Campbell, T. C.; Sirmon, D. G.; Bierman, L.; and Tuggle, C. S.. “Shareholder Influence over Director Nomination via Proxy Access: Implications for Agency Conflict and Stakeholder Value.” Strategic Management Journal, 33 (2012), 1431–1451.CrossRefGoogle Scholar
Cohn, J. B.; Gillan, S. L.; and Hartzell, J. C.. “On Enhancing Shareholder Control: A (Dodd-) Frank Assessment of Proxy Access.” Journal of Finance, 71 (2016), 1623–1668.CrossRefGoogle Scholar
Del Guercio, D., and Hawkins, J.. “The Motivation and Impact of Pension Fund Activism.” Journal of Financial Economics, 52 (1999), 293–340.CrossRefGoogle Scholar
Del Guercio, D.; Seery, L.; and Woidtke, T.. “Do Boards Pay Attention When Institutional Investor Activists ‘Just Vote No’?” Journal of Financial Economics, 90 (2008), 84–103.CrossRefGoogle Scholar
Demsetz, H., and Lehn, K.. “The Structure of Corporate Ownership: Causes and Consequences.” Journal of Political Economy, 93 (1985), 1155–1177.CrossRefGoogle Scholar
Ertimur, Y.; Ferri, F.; and Muslu, V.. “Shareholder Activism and CEO Pay.” Review of Financial Studies, 24 (2011), 535–592.CrossRefGoogle Scholar
Ertimur, Y.; Ferri, F.; and Stubben, S. R.. “Board of Directors’ Responsiveness to Shareholders: Evidence from Shareholder Proposals.” Journal of Corporate Finance, 16 (2010), 53–72.CrossRefGoogle Scholar
Faleye, O. “Classified Boards, Firm Value, and Managerial Entrenchment.” Journal of Financial Economics, 83 (2007), 501–529.CrossRefGoogle Scholar
Gillan, S. L., and Starks, L. T.. “Corporate Governance Proposals and Shareholder Activism: The Role of Institutional Investors.” Journal of Financial Economics, 57 (2000), 275–305.CrossRefGoogle Scholar
Greene, W. “Testing Hypotheses about Interaction Terms in Nonlinear Models.” Economics Letters, 107 (2010) 291–296.CrossRefGoogle Scholar
Hermalin, B. E., and Weisbach, M. S.. “Endogenously Chosen Boards of Directors and Their Monitoring of the CEO.” American Economic Review, 88 (1998), 96–118.Google Scholar
Iliev, P.; Kalodimos, J.; and Lowry, M.. “Investors’ Attention to Corporate Governance.” Working Paper, available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3162407 (2019).Google Scholar
Iliev, P., and Lowry, M.. “Are Mutual Funds Active Voters?” Review of Financial Studies, 28 (2015), 2167–2202.CrossRefGoogle Scholar
Jaffe, J. F. “Special Information and Insider Trading.” Journal of Business, 47 (1974), 410–428.CrossRefGoogle Scholar
Jochem, T. “Does Proxy Access Increase Shareholder Wealth? Evidence from a Natural Experiment.” Working Paper, available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2022706 (2012).Google Scholar
Karpoff, J. M.; Malatesta, P. H.; and Walkling, R. A.. “Corporate Governance and Shareholder Initiatives: Empirical Evidence.” Journal of Financial Economics, 42 (1996), 365–395.CrossRefGoogle Scholar
Larcker, D. F.; Ormazabal, G.; and Taylor, D. J.. “The Market Reaction to Corporate Governance Regulation.” Journal of Financial Economics, 101 (2011), 431–448.CrossRefGoogle Scholar
Lee, C., and Souther, M.. “Managerial Reliance on the Retail Shareholder Vote: Evidence from Proxy Delivery Methods.” Management Science, 66 (2019), 1717–1736.CrossRefGoogle Scholar
Listokin, Y. “Corporate Voting Versus Market Price Setting.” American Law and Economics Review, 11 (2009), 608–635.CrossRefGoogle Scholar
Malatesta, P. H., and Walkling, R. A.. “Poison Pill Securities: Stockholder Wealth, Profitability, and Ownership Structure.” Journal of Financial Economics, 20 (1988), 347–376.CrossRefGoogle Scholar
Malenko, N., and Shen, Y.. “The Role of Proxy Advisory Firms: Evidence from a Regression-Discontinuity Design.” Review of Financial Studies, 29 (2016), 3394–3427.CrossRefGoogle Scholar
Matsusaka, J.; Ozbas, O.; and Yi, I.. “Opportunistic Proposals by Union Shareholders.” Review of Financial Studies, 32 (2019), 3215–3265.CrossRefGoogle Scholar
Prevost, A. K., and Rao, R. P.. “Of What Value Are Shareholder Proposals Sponsored by Public Pension Funds?” Journal of Business, 73 (2000), 177–204.CrossRefGoogle Scholar
Renneboog, L., and Szilagyi, P. G.. “The Role of Shareholder Proposals in Corporate Governance.” Journal of Corporate Finance, 17 (2011), 167–188.CrossRefGoogle Scholar
Schoar, A., and Washington, E. L.. “Are the Seeds of Bad Governance Sown in Good Times?” Working Paper, National Bureau of Economic Research (2011).CrossRefGoogle Scholar
Smith, M. P. “Shareholder Activism by Institutional Investors: Evidence from CalPERS.” Journal of Finance, 51 (1996), 227–252.CrossRefGoogle Scholar
Stratmann, T., and Verret, J. W.. “Does Shareholder Proxy Access Damage Share Value in Small Publicly Traded Companies?” Stanford Law Review, 64 (2012), 1431–1468.Google Scholar
Strickland, D.; Wiles, K. W.; and Zenner, M.. “A Requiem for the USA Is Small Shareholder Monitoring Effective?” Journal of Financial Economics, 40 (1996), 319–338.CrossRefGoogle Scholar
Thomas, R. S., and Cotter, J. F.. “Shareholder Proposals in the New Millennium: Shareholder Support, Board Response, and Market Reaction.” Journal of Corporate Finance, 13 (2007), 368–391.CrossRefGoogle Scholar
Wahal, S. “Pension Fund Activism and Firm Performance.” Journal of Financial and Quantitative Analysis , 31 (1996), 1–23.CrossRefGoogle Scholar
Yermack, D. “Higher Market Valuation of Companies with a Small Board of Directors.” Journal of Financial Economics, 40 (1996), 185–211.CrossRefGoogle Scholar
Yermack, D. “Shareholder Voting and Corporate Governance.” Annual Review of Financial Economics, 2 (2010), 103–125.CrossRefGoogle Scholar
Supplementary material: PDF

Bhandari et al. supplementary material

Internet Appendix

Download Bhandari et al. supplementary material(PDF)
PDF 743.5 KB