Hostname: page-component-7c8c6479df-hgkh8 Total loading time: 0 Render date: 2024-03-28T02:32:44.441Z Has data issue: false hasContentIssue false

Shareholders in the Boardroom: Wealth Effects of the SEC’s Proposal to Facilitate Director Nominations

Published online by Cambridge University Press:  14 June 2012

Ali C. Akyol
Affiliation:
aakyol@unimelb.edu.au
Wei Fen Lim
Affiliation:
w.lim6@ugrad.unimelb.edu.au, University of Melbourne, Victoria 3010, Australia
Patrick Verwijmeren
Affiliation:
p.verwijmeren@vu.nl, VU University Amsterdam, De Boelelaan 1105, 1081 HV Amsterdam, The Netherlands and University of Melbourne

Abstract

Current attempts to reform financial markets presume that shareholder empowerment benefits shareholders. We investigate the wealth effects associated with the Securities and Exchange Commission’s rule to facilitate director nominations by shareholders. Our results are not in line with shareholder empowerment creating value: The average daily abnormal returns surrounding events that increase (decrease) the probability of the proposal’s passage are significantly negative (positive). Furthermore, given an increase in the probability of the proposal’s passage, firms whose shareholders are more likely to use the rule to nominate directors experience more negative abnormal returns.

Type
Research Articles
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2012

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Adams, R. B. “Governance of Banking Institutions.” In Corporate Governance: A Synthesis of Theory, Research, and Practice, Anderson, R. and Baker, H. K., eds. Hoboken, NJ: Wiley & Sons (2010).Google Scholar
Adams, R. B. “Governance and the Financial Crisis.” International Review of Finance, 12 (2012), 738.CrossRefGoogle Scholar
Adams, R. B., and Ferreira, D.. “A Theory of Friendly Boards.” Journal of Finance, 62 (2007), 217250.CrossRefGoogle Scholar
Adams, R. B.; Hermalin, B. E.; and Weisbach, M. S.. “The Role of Boards of Directors in Corporate Governance: A Conceptual Framework and Survey.” Journal of Economic Literature, 48 (2010), 58107.CrossRefGoogle Scholar
Adams, R. B., and Mehran, H.. “Is Corporate Governance Different for Bank Holding Companies?Economic Policy Review, 9 (2003), 123142.Google Scholar
Akyol, A. C.; Lim, W. F.; and Verwijmeren, P.. “Governance Characteristics and the Market Reaction to the SEC’s Proxy Access Rule.” International Review of Finance, 12 (2012), 175195.CrossRefGoogle Scholar
Bainbridge, S. M. “Director Primacy and Shareholder Disempowerment.” Harvard Law Review, 119 (2006), 17351758.Google Scholar
Bebchuk, L. A. “The Case for Increasing Shareholder Power.” Harvard Law Review, 118 (2005), 833914.Google Scholar
Becker, B.; Bergstresser, D.; and Subramaniam, G.. “Does Shareholder Proxy Access Improve Firm Value? Evidence from the Business Roundtable Challenge.” Working Paper, Harvard University (2011).CrossRefGoogle Scholar
Benston, G. J. “Required Disclosure and the Stock Market: An Evaluation of the Securities Exchange Act of 1934.” American Economic Review, 63 (1973), 132155.Google Scholar
Bratton, W. W., and Wachter, M.. “The Case against Shareholder Empowerment.” University of Pennsylvania Law Review, 158 (2010), 653728.Google Scholar
Brauer, R., and Nathan, C.. “Delaware Law Changes to Facilitate Voluntary Adoption of Proxy Access and Reimbursement Policy for Proxy Contests.” Georgeson and Latham & Watkins Corporate Governance Commentary (June 22, 2009).Google Scholar
Brav, A.; Jiang, W.; Partnoy, F.; and Thomas, R.. “Hedge Fund Activism, Corporate Governance, and Firm Performance.” Journal of Finance, 63 (2008), 17291775.CrossRefGoogle Scholar
Bushee, B. J., and Leuz, C.. “Economic Consequences of SEC Disclosure Regulation: Evidence from the OTC Bulletin Board.” Journal of Accounting and Economics, 39 (2005), 233264.CrossRefGoogle Scholar
Busse, J. A., and Green, T. C.. “Market Efficiency in Real Time.” Journal of Financial Economics, 65 (2002), 415437.CrossRefGoogle Scholar
Cai, J.; Garner, J. L.; and Walkling, R. A.. “Electing Directors.” Journal of Finance, 64 (2009), 23892421.CrossRefGoogle Scholar
Cai, J., and Walkling, R. A.. “Shareholders’ Say on Pay: Does It Create Value?Journal of Financial and Quantitative Analysis, 46 (2011), 299339.CrossRefGoogle Scholar
Chhaochharia, V., and Grinstein, Y.. “Corporate Governance and Firm Value: The Impact of the 2002 Governance Rules.” Journal of Finance, 62 (2007), 17891825.CrossRefGoogle Scholar
Chow, C. W. “The Impact of Accounting Regulation on Bondholder and Shareholder Wealth: The Case of the Securities Acts.” Accounting Review, 58 (1983), 485520.Google Scholar
Dvorak, P., and Scannell, K.. “Investors, Take Note: New Bill to Target Boards, ‘Say on Pay’.” The Wall Street Journal (Apr. 25, 2009).Google Scholar
Espahbodi, H.; Strock, E.; and Tehranian, H.. “Impact on Equity Prices of Pronouncements Related to Nonpension Postretirement Benefits.” Journal of Accounting and Economics, 14 (1991), 323346.CrossRefGoogle Scholar
Eun, C. S., and Shim, S.. “International Transmission of Stock Market Movements.” Journal of Financial and Quantitative Analysis, 24 (1989), 241256.CrossRefGoogle Scholar
Fama, E. F., and Jensen, M. C.. “Separation of Ownership and Control.” Journal of Law and Economics, 26 (1983), 301325.CrossRefGoogle Scholar
Flannery, M. J., and Protopapadakis, A. A.. “Macroeconomic Factors Do Influence Aggregate Stock Returns.” Review of Financial Studies, 15 (2002), 751782.CrossRefGoogle Scholar
Gillan, S. L., and Starks, L. T.. “Corporate Governance Proposals and Shareholder Activism: The Role of Institutional Investors.” Journal of Financial Economics, 57 (2000), 275305.CrossRefGoogle Scholar
Gillan, S. L., and Starks, L. T.. “The Evolution of Shareholder Activism in the United States.” Journal of Applied Corporate Finance, 19 (2007), 5573.CrossRefGoogle Scholar
Gordon, J. N. “Proxy Contests in an Era of Increasing Shareholder Power: Forget Issuer Proxy Access and Focus on E-Proxy.” Vanderbilt Law Review, 61 (2008), 475477.Google Scholar
Hamao, Y.; Masulis, R. W.; and Ng, V.. “Correlations in Price Changes and Volatility across International Stock Markets.” Review of Financial Studies, 3 (1990), 281307.CrossRefGoogle Scholar
Hermalin, B. E., and Weisbach, M. S.. “Endogenously Chosen Boards of Directors and Their Monitoring of the CEO.” American Economic Review, 88 (1998), 96118.Google Scholar
Herman, E. S. Corporate Control, Corporate Power: A Twentieth Century Fund Study. Cambridge: Cambridge University Press (1981).Google Scholar
Jain, P., and Rezaee, Z.. “The Sarbanes-Oxley Act of 2002 and Capital-Market Behavior: Early Evidence.” Contemporary Accounting Research, 23 (2006), 629654.CrossRefGoogle Scholar
Karpoff, J. M., and Malatesta, P. H.. “State Takeover Legislation and Share Values: The Wealth Effects of Pennsylvania’s Act 36.” Journal of Corporate Finance, 1 (1995), 367382.CrossRefGoogle Scholar
Karpoff, J. M.; Malatesta, P. H.; and Walkling, R. A.. “Corporate Governance and Shareholder Initiatives: Empirical Evidence.” Journal of Financial Economics, 42 (1996), 365395.CrossRefGoogle Scholar
Kothari, S. P., and Warner, J. B.. “Econometrics of Event Studies.” In Handbook of Corporate Finance: Empirical Corporate Finance, Vol. 1, Eckbo, B. E., ed. Amsterdam: Elsevier/North-Holland (2007).Google Scholar
Larcker, D. F.; Ormazabal, G.; and Taylor, D. J.. “The Market Reaction to Corporate Governance Regulation.” Journal of Financial Economics, 101 (2011), 431448.CrossRefGoogle Scholar
Li, H.; Pincus, M.; and Rego, S. O.. “Market Reaction to Events Surrounding the Sarbanes-Oxley Act of 2002 and Earnings Management.” Journal of Law and Economics, 51 (2008), 111134.CrossRefGoogle Scholar
Lo, K.Economic Consequences of Regulated Changes in Disclosure: The Case of Executive Compensation.” Journal of Accounting and Economics, 35 (2003), 285314.CrossRefGoogle Scholar
Mace, M. L. Directors: Myth and Reality. Boston: Harvard Business School Press (1986).Google Scholar
Malatesta, P. H., and Thompson, R.. “Government Regulation and Structural Change in the Corporate Acquisitions Market: The Impact of the Williams Act.” Journal of Financial and Quantitative Analysis, 28 (1993), 363379.CrossRefGoogle Scholar
Scannell, K.SEC Set to Open Up Proxy Access.” The Wall Street Journal (Aug. 5, 2010).Google Scholar
Schipper, K., and Thompson, R.. “The Impact of Merger-Related Regulations on the Shareholders of Acquiring Firms.” Journal of Accounting Research, 21 (1983), 184221.CrossRefGoogle Scholar
Sefcik, S. E., and Thompson, R.. “An Approach to Statistical Inference in Cross-Sectional Models with Security Abnormal Returns as Dependent Variables.” Journal of Accounting Research, 24 (1986), 316334.CrossRefGoogle Scholar
Smith, M. P. “Shareholder Activism by Institutional Investors: Evidence from CalPERS.” Journal of Finance, 51 (1996), 227252.CrossRefGoogle Scholar
Stigler, G. J. “Public Regulation of the Securities Markets.” Journal of Business, 37 (1964), 117142.CrossRefGoogle Scholar
Wahal, S.Pension Fund Activism and Firm Performance.” Journal of Financial and Quantitative Analysis, 31 (1996), 123.CrossRefGoogle Scholar
Whitehouse, K.Court Rules Shareholders Can Put Dissidents on Co Proxies.” Dow Jones Newswires (Sept. 6, 2006).Google Scholar
Zhang, I. X. “Economic Consequences of the Sarbanes-Oxley Act of 2002.” Journal of Accounting and Economics, 44 (2007), 74115.CrossRefGoogle Scholar