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Corporate Governance through the Proxy Contest: Evidence and Implications

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Listed author(s):
  • Ikenberry, David
  • Lakonishok, Josef
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    Abstract

    The current literature concerning proxy contests provides little evidence that shareholders suffer materially from sub par performance prior to a contest. Furthermore, no study has thoroughly examined the long-term performance of targeted firms subsequent to a proxy contest. Using a sample of ninety-seven election contests during the period 1968-87, the authors find negative abnormal returns and deteriorating operating performance prior to the announcement of a contest. Following the contest, negative abnormal returns are observed. These negative returns are driven by cases in which dissident shareholders successfully acquire board seats. The results for accounting-based operating performance measures confirm these findings. Copyright 1993 by University of Chicago Press.

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    File URL: http://dx.doi.org/10.1086/296610
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    Article provided by University of Chicago Press in its journal Journal of Business.

    Volume (Year): 66 (1993)
    Issue (Month): 3 (July)
    Pages: 405-435

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    Handle: RePEc:ucp:jnlbus:v:66:y:1993:i:3:p:405-35
    Contact details of provider: Web page: http://www.journals.uchicago.edu/JB/

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    Cited by:

    1. Ila Alam & Robin Sickles, 1998. "The Relationship Between Stock Market Returns and Technical Efficiency Innovations: Evidence from the US Airline Industry," Journal of Productivity Analysis, Springer, vol. 9(1), pages 35-51, January.
    2. Charalambos Th. Constantinou & Costas Th. Constantinou, 2003. "The Effect of Board Structure on Bidder-Shareholders' Wealth: Further Evidence from the UK Bidding Firms," Working Papers wp261, Centre for Business Research, University of Cambridge.
    3. Fama, Eugene F., 1998. "Market efficiency, long-term returns, and behavioral finance," Journal of Financial Economics, Elsevier, vol. 49(3), pages 283-306, September.
    4. Ning Gao, 2010. "Capital structure and outcome of proxy contest targets: An empirical study," Managerial Finance, Emerald Group Publishing, vol. 36(4), pages 294-321, March.
    5. Spiess, D. Katherine & Affleck-Graves, John, 1999. "The long-run performance of stock returns following debt offerings," Journal of Financial Economics, Elsevier, vol. 54(1), pages 45-73, October.
    6. Cindy R. Alexander & Mark A. Chen & Duane J. Seppi & Chester S. Spatt, 2009. "The Role of Advisory Services in Proxy Voting," NBER Working Papers 15143, National Bureau of Economic Research, Inc.
    7. Taufiq Choudhry & Ranadeva Jayasekera, 2015. "Level of efficiency in the UK equity market: empirical study of the effects of the global financial crisis," Review of Quantitative Finance and Accounting, Springer, vol. 44(2), pages 213-242, February.
    8. Michel Albouy & Alain Schatt, 2004. "Les prises de contrôle par les actionnaires contestataires:le cas André," Revue Finance Contrôle Stratégie, revues.org, vol. 7(2), pages 33-65, June.
    9. Michael J. Fleming, 1995. "New evidence on the effectiveness of the proxy mechanism," Research Paper 9503, Federal Reserve Bank of New York.
    10. Mulherin, J. Harold & Poulsen, Annette B., 1998. "Proxy contests and corporate change: implications for shareholder wealth," Journal of Financial Economics, Elsevier, vol. 47(3), pages 279-313, March.
    11. Ikenberry, David & Lakonishok, Josef & Vermaelen, Theo, 1995. "Market underreaction to open market share repurchases," Journal of Financial Economics, Elsevier, vol. 39(2-3), pages 181-208.
    12. Lin, Ji-Chai & Wu, YiLin, 2013. "SEO timing and liquidity risk," Journal of Corporate Finance, Elsevier, vol. 19(C), pages 95-118.
    13. Cowan, Arnold R. & Sergeant, Anne M. A., 2001. "Interacting biases, non-normal return distributions and the performance of tests for long-horizon event studies," Journal of Banking & Finance, Elsevier, vol. 25(4), pages 741-765, April.
    14. Choudhry, Taufiq & Jayasekera, Ranadeva, 2012. "Comparison of efficiency characteristics between the banking sectors of US and UK during the global financial crisis of 2007–2011," International Review of Financial Analysis, Elsevier, vol. 25(C), pages 106-116.
    15. Chan, Wesley S., 2003. "Stock price reaction to news and no-news: drift and reversal after headlines," Journal of Financial Economics, Elsevier, vol. 70(2), pages 223-260, November.
    16. Choudhry, Taufiq & Jayasekera, Ranadeva, 2014. "Market efficiency during the global financial crisis: Empirical evidence from European banks," Journal of International Money and Finance, Elsevier, vol. 49(PB), pages 299-318.
    17. Karpov, A., 2012. "Corporate Board Elections and Company's Performance," Journal of the New Economic Association, New Economic Association, vol. 16(4), pages 10-25.
    18. Lin, Ji-Chai & Stephens, Clifford P. & Wu, YiLin, 2014. "Limited attention, share repurchases, and takeover risk," Journal of Banking & Finance, Elsevier, vol. 42(C), pages 283-301.

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