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Managerial Response to Shareholder Empowerment: Evidence from Majority-Voting Legislation Changes

Published online by Cambridge University Press:  18 March 2025

Vicente Cuñat Open the ORCID record for Vicente Cuñat [Opens in a new window] ,
Yiqing Lü  and
Hong Wu
Vicente Cuñat*
Affiliation:
Department of Finance, The London School of Economics, Centre for Economic Policy Research (CEPR), and European Corporate Governance Institute (ECGI)
Yiqing Lü
Affiliation:
New York University Shanghai yiqing.lu@nyu.edu
Hong Wu
Affiliation:
Department of Accountancy, City University of Hong Kong hong.wu.pitt@gmail.com
*
V.Cunat@lse.ac.uk (corresponding author)
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Abstract

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We study how managers react to shareholder empowerment that makes votes on shareholder proposals binding. We empirically exploit staggered legislative changes that introduce such empowerment for proposals regarding majority voting in director elections. We find that managers become more responsive to shareholder requirements by initiating majority voting through either management proposals or governance guidelines. This early action crowds out shareholder proposals. Further results suggest compromised implementation: Managers adopt provisions that give them greater control over the channel of implementation and allow them to retain directors who fail in elections. Our results suggest that managers retain substantial discretion to modulate shareholder requirements. This article was partially completed when Wu was at Fudan University. Any errors are attributable solely to the authors.

Information

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 60 , Issue 5 , August 2025 , pp. 2500 - 2525
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2025. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

We thank an anonymous referee and Ran Duchin (the editor) for their useful comments. We also thank Reena Aggarwal, Ilona Babenka, Andrew Baker, Lucian Bebchuk, Alon Brav, Ofer Eldar, Denis Gromb, Swasti Gupta-Mukherjee, Doron Levit, Michelle Lowry, Nadya Malenko, John Mastusaka, Seungjoon Oh, Edmund Schuster, Ralph Walkling, David Yermack, and audiences at the 2021 LSE-UCL Law and Finance Seminar, 2021 FIRS, 2020 American Finance Association Annual Meeting, The 2018 Spanish Economic Association Annual Conference, 2019 FMA Europe Conference, 2019 CICF, The Erasmus School of Economics, The Technical University of Munich, NYU Shanghai, and Fudan University.

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