IDEAS home Printed from https://ideas.repec.org/p/tiu/tiutis/5289a4ed-dc7e-4f15-8305-763f2114b194.html
   My bibliography  Save this paper

Shareholder Activism through Proxy Proposals : The European Perspective

Author

Listed:
  • Cziraki, P.

    (Tilburg University, School of Economics and Management)

  • Renneboog, L.D.R.

    (Tilburg University, School of Economics and Management)

  • Szilagyi, P.G.

    (Tilburg University, School of Economics and Management)

Abstract

This paper is the first to investigate the corporate governance role of shareholder†initiated proxy proposals in European firms. Proposal submissions in Europe remain infrequent compared to the USA, especially in Continental Europe. In the UK proposals typically relate to a proxy contest seeking board changes, while in Continental Europe they are more focused on specific governance issues. There is some evidence that proposal sponsors are valuable monitors, because the target firms tend to underperform and have low leverage. Sponsors also consider the ownership structure of the firm, because proposal probability increases in the target's ownership concentration and the equity stake of institutional investors. While proposals enjoy limited voting success across Europe, they are relatively more successful in the UK. The outcomes are strongest for proposals targeting the board but are also affected by the target characteristics including the CEO's pay†performance sensitivity. Proposals are met with a significant negative abnormal return of −1.23%, when they are voted upon at general meetings. The low voting support gathered by proposals and the strongly adverse market reaction suggest that shareholders of European companies use proposals as an emergency brake rather than a steering wheel.
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Cziraki, P. & Renneboog, L.D.R. & Szilagyi, P.G., 2009. "Shareholder Activism through Proxy Proposals : The European Perspective," Other publications TiSEM 5289a4ed-dc7e-4f15-8305-7, Tilburg University, School of Economics and Management.
  • Handle: RePEc:tiu:tiutis:5289a4ed-dc7e-4f15-8305-763f2114b194
    as

    Download full text from publisher

    File URL: https://pure.uvt.nl/ws/portalfiles/portal/1097388/2009-44.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Bhagat, Sanjai, 1983. "The effect of pre-emptive right amendments on shareholder wealth," Journal of Financial Economics, Elsevier, vol. 12(3), pages 289-310, November.
    2. Eugene F. Fama & Kenneth R. French, 2001. "Disappearing Dividends: Changing Firm Characteristics Or Lower Propensity To Pay?," Journal of Applied Corporate Finance, Morgan Stanley, vol. 14(1), pages 67-79, March.
    3. Ertimur, Yonca & Ferri, Fabrizio & Stubben, Stephen R., 2010. "Board of directors' responsiveness to shareholders: Evidence from shareholder proposals," Journal of Corporate Finance, Elsevier, vol. 16(1), pages 53-72, February.
    4. Peter Cziraki & Luc Renneboog & Peter G. Szilagyi, 2010. "Shareholder Activism through Proxy Proposals: The European Perspective," European Financial Management, European Financial Management Association, vol. 16(5), pages 738-777, November.
    5. Michael C. Jensen, 2010. "The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems," Journal of Applied Corporate Finance, Morgan Stanley, vol. 22(1), pages 43-58, January.
    6. Bhagat, Sanjai & Brickley, James A, 1984. "Cumulative Voting: The Value of Minority Shareholder Voting Rights," Journal of Law and Economics, University of Chicago Press, vol. 27(2), pages 339-365, October.
    7. Prevost, Andrew K & Rao, Ramesh P, 2000. "Of What Value Are Shareholder Proposals Sponsored by Public Pension Funds?," The Journal of Business, University of Chicago Press, vol. 73(2), pages 177-204, April.
    8. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    9. Marco Becht & Colin Mayer, 2002. "Corporate control in Europe," Revue d'économie politique, Dalloz, vol. 112(4), pages 471-498.
    10. April Klein & Emanuel Zur, 2009. "Entrepreneurial Shareholder Activism: Hedge Funds and Other Private Investors," Journal of Finance, American Finance Association, vol. 64(1), pages 187-229, February.
    11. Franks, Julian & Mayer, Colin, 2001. "Ownership and Control of German Corporations," Review of Financial Studies, Society for Financial Studies, vol. 14(4), pages 943-977.
    12. Marina Martynova & Luc Renneboog, 2010. "Spillover of Corporate Governance Standards in Cross-Border Mergers and Acquisition," Chapters, in: Alessio M. Pacces (ed.), The Law and Economics of Corporate Governance, chapter 3, Edward Elgar Publishing.
    13. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
    14. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    15. Yermack, David, 1996. "Higher market valuation of companies with a small board of directors," Journal of Financial Economics, Elsevier, vol. 40(2), pages 185-211, February.
    16. Marco Becht & Julian Franks & Colin Mayer & Stefano Rossi, 2010. "Returns to Shareholder Activism: Evidence from a Clinical Study of the Hermes UK Focus Fund," NBER Chapters, in: Corporate Governance, National Bureau of Economic Research, Inc.
    17. Abe Jong & Gerard Mertens & Peter Roosenboom, 2006. "Shareholders’ Voting at General Meetings: Evidence from the Netherlands," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 10(4), pages 353-380, November.
    18. Carine Girard, 2009. "Comparative study of successful French and Anglo-Saxon shareholder activism," Post-Print hal-00760812, HAL.
    19. Rafael La Porta & Florencio Lopez‐De‐Silanes & Andrei Shleifer, 1999. "Corporate Ownership Around the World," Journal of Finance, American Finance Association, vol. 54(2), pages 471-517, April.
    20. Renneboog, L.D.R. & Szilagyi, P.G., 2009. "Shareholder Activism through the Proxy Process," Discussion Paper 2009-65, Tilburg University, Center for Economic Research.
    21. Brickley, James A. & Lease, Ronald C. & Smith, Clifford Jr., 1988. "Ownership structure and voting on antitakeover amendments," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 267-291, January.
    22. Pound, John, 1988. "Proxy contests and the efficiency of shareholder oversight," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 237-265, January.
    23. Boehmer, Ekkehart & Masumeci, Jim & Poulsen, Annette B., 1991. "Event-study methodology under conditions of event-induced variance," Journal of Financial Economics, Elsevier, vol. 30(2), pages 253-272, December.
    24. Amemiya, Takeshi, 1984. "Tobit models: A survey," Journal of Econometrics, Elsevier, vol. 24(1-2), pages 3-61.
    25. Guercio, Diane Del & Hawkins, Jennifer, 1999. "The motivation and impact of pension fund activism," Journal of Financial Economics, Elsevier, vol. 52(3), pages 293-340, June.
    26. Jensen, Michael C & Murphy, Kevin J, 1990. "Performance Pay and Top-Management Incentives," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 225-264, April.
    27. Jensen, Michael C. & Ruback, Richard S., 1983. "The market for corporate control : The scientific evidence," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 5-50, April.
    28. Barca, Fabrizio & Becht, Marco (ed.), 2001. "The Control of Corporate Europe," OUP Catalogue, Oxford University Press, number 9780199247424.
    29. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    30. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 31(3), pages 129-137.
    31. Thomas, Randall S. & Cotter, James F., 2007. "Shareholder proposals in the new millennium: Shareholder support, board response, and market reaction," Journal of Corporate Finance, Elsevier, vol. 13(2-3), pages 368-391, June.
    32. repec:hrv:faseco:30747162 is not listed on IDEAS
    33. Faccio, Mara & Lang, Larry H. P., 2002. "The ultimate ownership of Western European corporations," Journal of Financial Economics, Elsevier, vol. 65(3), pages 365-395, September.
    34. Karpoff, Jonathan M. & Malatesta, Paul H. & Walkling, Ralph A., 1996. "Corporate governance and shareholder initiatives: Empirical evidence," Journal of Financial Economics, Elsevier, vol. 42(3), pages 365-395, November.
    35. Stuart L. Gillan & Laura T. Starks, 2007. "The Evolution of Shareholder Activism in the United States," Journal of Applied Corporate Finance, Morgan Stanley, vol. 19(1), pages 55-73, January.
    36. Bizjak, John M. & Marquette, Christopher J., 1998. "Are Shareholder Proposals All Bark and No Bite? Evidence from Shareholder Resolutions to Rescind Poison Pills," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 33(4), pages 499-521, December.
    37. Marco Becht & Fabrizio Barca, 2001. "The control of corporate Europe," ULB Institutional Repository 2013/13302, ULB -- Universite Libre de Bruxelles.
    38. Carine Girard, 2009. "Comparative study of successful French and Anglo-Saxon shareholder activism," Post-Print hal-00760813, HAL.
    39. Marco Becht, 2001. "Beneficial ownership in the United States," ULB Institutional Repository 2013/13336, ULB -- Universite Libre de Bruxelles.
    40. Smith, Michael P, 1996. "Shareholder Activism by Institutional Investors: Evidence for CalPERS," Journal of Finance, American Finance Association, vol. 51(1), pages 227-252, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Feito-Ruiz, Isabel & Renneboog, Luc & Vansteenkiste, Cara, 2020. "Elective stock and scrip dividends," Journal of Corporate Finance, Elsevier, vol. 64(C).
    2. Marco Becht & Julian Franks & Jeremy Grant & Hannes F. Wagner, 2017. "Returns to Hedge Fund Activism: An International Study," Review of Financial Studies, Society for Financial Studies, vol. 30(9), pages 2933-2971.
    3. Peter Cziraki & Luc Renneboog & Peter G. Szilagyi, 2010. "Shareholder Activism through Proxy Proposals: The European Perspective," European Financial Management, European Financial Management Association, vol. 16(5), pages 738-777, November.
    4. Dumitru-Nicusor CARAUSU, 2015. "Monitor And Control In Companies: An Agency Theory Approach," Journal of Public Administration, Finance and Law, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 0(Special i), pages 46-60, September.
    5. James Borthwick & Aelee Jun & Shiguang Ma, 2020. "Changing board behaviour: The role of the ‘Two Strikes’ rule in improving the efficacy of Australian Say‐on‐Pay," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(S1), pages 827-876, April.
    6. Vanessa Serret & Sylvie Berthelot, 2013. "Activisme Actionnarial Et Responsabilite Sociale Des Entreprises Au Canada : Analyse Des Resolutions Soumises Par Les Actionnaires Entre 2000 Et 2011," Post-Print hal-01002373, HAL.
    7. Jean J. Chen & Haitao Zhang, 2014. "The Impact of the Corporate Governance Code on Earnings Management – Evidence from Chinese Listed Companies," European Financial Management, European Financial Management Association, vol. 20(3), pages 596-632, June.
    8. Patrick Velte, 2020. "Determinants and consequences of clawback provisions in management compensation contracts: a structured literature review on empirical evidence," Business Research, Springer;German Academic Association for Business Research, vol. 13(3), pages 1417-1450, November.
    9. Peter Cziraki & Prof. Dr. Luc Renneboog & Peter de Goeij, 2010. "Insider Trading, Option Exercises and Private Benefits of Control," CERS-IE WORKING PAPERS 1006, Institute of Economics, Centre for Economic and Regional Studies.
    10. Chii-Shyan Kuo & Chandra Subramaniam & Xu Wang & Shih-Ti Yu, 2020. "Adoption of performance-vested equity incentives under investor pressure: window dressing or taking the window of opportunity?," Review of Quantitative Finance and Accounting, Springer, vol. 54(2), pages 565-587, February.
    11. Vincent C. Ma & John S. Liu, 2016. "Exploring the research fronts and main paths of literature: a case study of shareholder activism research," Scientometrics, Springer;Akadémiai Kiadó, vol. 109(1), pages 33-52, October.
    12. Erwin Eding & Bert Scholtens, 2017. "Corporate Social Responsibility and Shareholder Proposals," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 24(6), pages 648-660, November.
    13. Feito-Ruiz, Isabel & Renneboog, Luc, 2017. "Takeovers and (excess) CEO compensation," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 50(C), pages 156-181.
    14. Ya-Fang Wang & Yen-Fang Kuo, 2020. "Exploring the Family Effect on Innovative Capacity and Earnings Management," International Journal of Business and Economic Sciences Applied Research (IJBESAR), International Hellenic University (IHU), Kavala Campus, Greece (formerly Eastern Macedonia and Thrace Institute of Technology - EMaTTech), vol. 13(2), pages 39-61, September.
    15. Nicola Cucari, 2019. "Determinants of say on pay vote: a configurational analysis," International Entrepreneurship and Management Journal, Springer, vol. 15(3), pages 837-856, September.
    16. Andres Christian & Jacob Martin & Ulrich Lennart, 2019. "Takeover Protection and Firm Value," Review of Law & Economics, De Gruyter, vol. 15(1), pages 1-46, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Renneboog, L.D.R. & Szilagyi, P.G., 2009. "Shareholder Activism through the Proxy Process," Other publications TiSEM cc25d736-2965-4511-b100-1, Tilburg University, School of Economics and Management.
    2. Szilagyi, P.G., 2007. "Corporate governance and the agency costs of debt and outside equity," Other publications TiSEM 9520d40a-224f-43a8-9bf9-b, Tilburg University, School of Economics and Management.
    3. Renneboog, Luc & Szilagyi, Peter G., 2011. "The role of shareholder proposals in corporate governance," Journal of Corporate Finance, Elsevier, vol. 17(1), pages 167-188, February.
    4. Feito-Ruiz, Isabel & Renneboog, Luc, 2017. "Takeovers and (excess) CEO compensation," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 50(C), pages 156-181.
    5. Denes, Matthew R. & Karpoff, Jonathan M. & McWilliams, Victoria B., 2017. "Thirty years of shareholder activism: A survey of empirical research," Journal of Corporate Finance, Elsevier, vol. 44(C), pages 405-424.
    6. Goergen, Marc & Manjon, Miguel C. & Renneboog, Luc, 2008. "Recent developments in German corporate governance," International Review of Law and Economics, Elsevier, vol. 28(3), pages 175-193, September.
    7. Chii-Shyan Kuo & Chandra Subramaniam & Xu Wang & Shih-Ti Yu, 2020. "Adoption of performance-vested equity incentives under investor pressure: window dressing or taking the window of opportunity?," Review of Quantitative Finance and Accounting, Springer, vol. 54(2), pages 565-587, February.
    8. Maria Goranova & Rahi Abouk & Paul C. Nystrom & Ehsan S. Soofi, 2017. "Corporate governance antecedents to shareholder activism: A zero-inflated process," Strategic Management Journal, Wiley Blackwell, vol. 38(2), pages 415-435, February.
    9. Renneboog, L.D.R. & Trojanowski, G., 2002. "The Managerial Labor Market and the Governance Role of Shareholder Control Structures in the UK," Discussion Paper 2002-68, Tilburg University, Center for Economic Research.
    10. Wang, Yong & Mao, Connie X., 2015. "Shareholder activism of public pension funds: The political facet," Journal of Banking & Finance, Elsevier, vol. 60(C), pages 138-152.
    11. Gine, Mireia & Moussawi, Rabih & Sedunov, John, 2017. "Governance mechanisms and effective activism: Evidence from shareholder proposals on poison pills," Journal of Empirical Finance, Elsevier, vol. 43(C), pages 185-202.
    12. Loureiro, Gilberto & Makhija, Anil K. & Zhang, Dan, 2011. "Why Do Some CEOs Work for a One-Dollary Salary?," Working Paper Series 2011-7, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    13. Edmans, Alex & Holderness, Clifford, 2016. "Blockholders: A Survey of Theory and Evidence," CEPR Discussion Papers 11442, C.E.P.R. Discussion Papers.
    14. Céline Du Boys, 2009. "Is payout policy part of the corporate governance system? The case of France," Post-Print hal-01290737, HAL.
    15. Schmid, Thomas & Ampenberger, Markus & Kaserer, Christoph & Achleitner, Ann-Kristin, 2010. "Controlling shareholders and payout policy: do founding families have a special 'taste for dividends'?," CEFS Working Paper Series 2010-01, Technische Universität München (TUM), Center for Entrepreneurial and Financial Studies (CEFS).
    16. 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.
    17. Siala Bouaziz Souha & Jarboui Anis & David McMillan, 2016. "Corporate governance and firm characteristics as explanatory factors of shareholder activism: Validation through the French context," Cogent Economics & Finance, Taylor & Francis Journals, vol. 4(1), pages 1150407-115, December.
    18. Mike Burkart & Samuel Lee, 2008. "One Share - One Vote: the Theory," Review of Finance, European Finance Association, vol. 12(1), pages 1-49.
    19. Ben Arfa, Nouha & Karmani, Majdi & Labaronne, Daniel, 2017. "Antecedents of hedge fund activism in French listed target firms," Research in International Business and Finance, Elsevier, vol. 42(C), pages 1315-1326.
    20. María Consuelo Pucheta-Martínez & Inmaculada Bel-Oms & Gustau Olcina-Sempere, 2018. "Female Institutional Directors on Boards and Firm Value," Journal of Business Ethics, Springer, vol. 152(2), pages 343-363, October.

    More about this item

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tiu:tiutis:5289a4ed-dc7e-4f15-8305-763f2114b194. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://www.tilburguniversity.edu/about/schools/economics-and-management/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Richard Broekman (email available below). General contact details of provider: https://www.tilburguniversity.edu/about/schools/economics-and-management/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.