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Can Shareholder Proposals Hurt Shareholders? Evidence from Securities and Exchange Commission No-Action-Letter Decisions

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  • John G. Matsusaka
  • Oguzhan Ozbas
  • Irene Yi

Abstract

This paper studies Securities and Exchange Commission (SEC) no-action-letter decisions that determine whether companies can exclude shareholder proposals from their proxy statements. During 2007–19, the market reacted positively when the SEC permitted exclusion, which suggests that investors viewed those proposals as value reducing on average. We also find that a company’s stock price decreased over time while waiting for an SEC decision, which suggests that challenged proposals imposed distraction costs on companies. The SEC’s decisions can be predicted by regulatory rules but are also related to a proposal’s predicted votes—more popular types of proposals were less likely to be removed. We find no robust evidence that no-action-letter decisions differed when the SEC was controlled by Democrats versus Republicans. Taken together, the evidence suggests that managers may be serving shareholder interests in opposing some proposals and that the no-action-letter process may be helping shareholders by weeding out value-reducing proposals.

Suggested Citation

  • John G. Matsusaka & Oguzhan Ozbas & Irene Yi, 2021. "Can Shareholder Proposals Hurt Shareholders? Evidence from Securities and Exchange Commission No-Action-Letter Decisions," Journal of Law and Economics, University of Chicago Press, vol. 64(1), pages 107-152.
    • Handle: RePEc:ucp:jlawec:doi:10.1086/710828
    DOI: 10.1086/710828
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    Cited by:

    1. Matthew E. Kahn & John Matsusaka & Chong Shu, 2023. "Divestment and Engagement: The Effect of Green Investors on Corporate Carbon Emissions," NBER Working Papers 31791, National Bureau of Economic Research, Inc.
    2. Cuñat, Vicente & Lu, Yiqing & Wu, Hong, 2021. "Managerial response to shareholder empowerment: evidence from majority- voting legislation changes," LSE Research Online Documents on Economics 118896, London School of Economics and Political Science, LSE Library.

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