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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. 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.
    2. 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.
    3. 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.
    4. 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.
    5. Michael J. Fleming, 1995. "New evidence on the effectiveness of the proxy mechanism," Research Paper 9503, Federal Reserve Bank of New York.
    6. Fama, Eugene F., 1998. "Market efficiency, long-term returns, and behavioral finance," Journal of Financial Economics, Elsevier, vol. 49(3), pages 283-306, September.
    7. 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.
    8. 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.
    9. Lin, Ji-Chai & Wu, YiLin, 2013. "SEO timing and liquidity risk," Journal of Corporate Finance, Elsevier, vol. 19(C), pages 95-118.
    10. 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.
    11. 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.
    12. 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.
    13. 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.
    14. 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.
    15. 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.
    16. 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.
    17. 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.
    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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