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Does Mandatory Shareholder Voting Prevent Bad Acquisitions?

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  • Marco Becht
  • Andrea Polo
  • Stefano Rossi

Abstract

Shareholder voting on corporate acquisitions is controversial. In most countries, acquisition decisions are delegated to boards, and shareholder approval is discretionary, which makes existing empirical studies inconclusive. We study the U.K. setting in which shareholder approval is imposed exogenously via a threshold test that provides strong identification. U.K. shareholders gain 8 cents per dollar at announcement with mandatory voting, or $\$13.6$ billion over 1992–2010 in aggregate; without voting, U.K. shareholders lost $\$3$ billion. Multidimensional regression discontinuity analysis supports a causal interpretation. The evidence suggests that mandatory voting imposes a binding constraint on acquirer chief executive officers.Received October 22, 2015; accepted May 11, 2016, by Editor David Denis.

Suggested Citation

  • Marco Becht & Andrea Polo & Stefano Rossi, 2016. "Does Mandatory Shareholder Voting Prevent Bad Acquisitions?," Review of Financial Studies, Society for Financial Studies, vol. 29(11), pages 3035-3067.
  • Handle: RePEc:oup:rfinst:v:29:y:2016:i:11:p:3035-3067.
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    3. Drobetz, W. & Momtaz, Paul P., 2020. "Antitakeover Provisions and Firm Value: New Evidence from the M&A Market," Journal of Corporate Finance, Elsevier, vol. 62(C).
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    5. Renneboog, Luc & Vansteenkiste, Cara, 2019. "Failure and success in mergers and acquisitions," Journal of Corporate Finance, Elsevier, vol. 58(C), pages 650-699.
    6. Chen, An-Sing & Chu, Hsiang-Hui & Hung, Pi-Hsia & Cheng, Miao-Sih, 2020. "Financial risk and acquirers' stockholder wealth in mergers and acquisitions," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
    7. Fried, Jesse & Kamar, Ehud & Yafeh, Yishay, 2018. "The Effect of Minority Veto Rights on Controller Tunneling," CEPR Discussion Papers 12697, C.E.P.R. Discussion Papers.
    8. Holderness, Clifford G., 2018. "Equity issuances and agency costs: The telling story of shareholder approval around the world," Journal of Financial Economics, Elsevier, vol. 129(3), pages 415-439.
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    More about this item

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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