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Shareholder Activism through the Proxy Process

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  • Renneboog, L.D.R.
  • Szilagyi, P.G.

    (Tilburg University, Center for Economic Research)

Abstract

This paper provides evidence on the corporate governance role of shareholderinitiated proxy proposals. Previous studies debate over whether activists use proxy proposals to discipline firms or to simply advance their self-serving agendas, and whether proxy proposals are effective at all in addressing governance concerns. Using the largest sample yet examined as well as extensive controls for governance quality, we find that activists use the proxy process as a disciplinary mechanism, and as such are valuable monitoring agents. Moreover, proposal announcements in the proxy statements have positive stock price effects, and both the market and the voting shareholders respond as much to the target firm’s governance quality as to the proposal’s objective and sponsoring shareholder. We address the endogeneity of target selection and proposal success using sample selection models. We conclude that shareholder proposals have nontrivial control benefits, countering arguments that they should be restricted by the SEC.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2009-65.

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Date of creation: 2009
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Handle: RePEc:dgr:kubcen:200965

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Web page: http://center.uvt.nl

Related research

Keywords: Shareholder activism; shareholder proposals; corporate governance; sample selection;

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Cited by:
  1. Cziraki, P. & Renneboog, L.D.R. & Szilagyi, P.G., 2009. "Shareholder Activism through Proxy Proposals: The European Perspective," Discussion Paper 2009-019, Tilburg University, Tilburg Law and Economic Center.
  2. Hadani, Michael & Goranova, Maria & Khan, Raihan, 2011. "Institutional investors, shareholder activism, and earnings management," Journal of Business Research, Elsevier, vol. 64(12), pages 1352-1360.

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