Shareholder Activism through the Proxy Process

L.D.R. Renneboog, P.G. Szilagyi

Research output: Working paperDiscussion paperOther research output

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Abstract

This paper provides evidence on the corporate governance role of shareholderinitiated proxy proposals. Previous studies debate over whether activists use proxy proposals to discipline firms or to simply advance their self-serving agendas, and whether proxy proposals are effective at all in addressing governance concerns. Using the largest sample yet examined as well as extensive controls for governance quality, we find that activists use the proxy process as a disciplinary mechanism, and as such are valuable monitoring agents. Moreover, proposal announcements in the proxy statements have positive stock price effects, and both the market and the voting shareholders respond as much to the target firm’s governance quality as to the proposal’s objective and sponsoring shareholder. We address the endogeneity of target selection and proposal success using sample selection models. We conclude that shareholder proposals have nontrivial control benefits, countering arguments that they should be restricted by the SEC.
Original languageEnglish
Place of PublicationTilburg
PublisherFinance
Number of pages41
Volume2009-65
Publication statusPublished - 2009

Publication series

NameCentER Discussion Paper
Volume2009-65

Fingerprint

Governance
Shareholder activism
Shareholders
Sample selection model
Announcement
Shareholder voting
Corporate governance
Sponsoring
Endogeneity
Stock prices
Monitoring
Price effects
Agenda

Keywords

  • Shareholder activism
  • shareholder proposals
  • corporate governance
  • sample selection

Cite this

Renneboog, L. D. R., & Szilagyi, P. G. (2009). Shareholder Activism through the Proxy Process. (CentER Discussion Paper; Vol. 2009-65). Tilburg: Finance.
Renneboog, L.D.R. ; Szilagyi, P.G. / Shareholder Activism through the Proxy Process. Tilburg : Finance, 2009. (CentER Discussion Paper).
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Renneboog, LDR & Szilagyi, PG 2009 'Shareholder Activism through the Proxy Process' CentER Discussion Paper, vol. 2009-65, Finance, Tilburg.

Shareholder Activism through the Proxy Process. / Renneboog, L.D.R.; Szilagyi, P.G.

Tilburg : Finance, 2009. (CentER Discussion Paper; Vol. 2009-65).

Research output: Working paperDiscussion paperOther research output

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AB - This paper provides evidence on the corporate governance role of shareholderinitiated proxy proposals. Previous studies debate over whether activists use proxy proposals to discipline firms or to simply advance their self-serving agendas, and whether proxy proposals are effective at all in addressing governance concerns. Using the largest sample yet examined as well as extensive controls for governance quality, we find that activists use the proxy process as a disciplinary mechanism, and as such are valuable monitoring agents. Moreover, proposal announcements in the proxy statements have positive stock price effects, and both the market and the voting shareholders respond as much to the target firm’s governance quality as to the proposal’s objective and sponsoring shareholder. We address the endogeneity of target selection and proposal success using sample selection models. We conclude that shareholder proposals have nontrivial control benefits, countering arguments that they should be restricted by the SEC.

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Renneboog LDR, Szilagyi PG. Shareholder Activism through the Proxy Process. Tilburg: Finance. 2009. (CentER Discussion Paper).