Shareholders and Governance
Sunday, Jan. 8, 2017 1:00 PM – 3:00 PM
Sheraton Grand Chicago, Sheraton Ballroom II
- Chair: Xavier Giroud, Massachusetts Institute of Technology
Opportunistic Proposals by Union Shareholders
AbstractCorporate governance reformers hope that giving shareholders more voting rights will improve firm performance, but critics argue that some shareholders, such as labor unions and public pensions, will use their rights to advance private interests. This paper finds that labor unions use shareholder proposals "opportunistically" to influence contract negotiations. We show theoretically that shareholder proposals can be used as bargaining chips to extract side payments from management. Our empirical strategy is based on the observation that proposals have a higher than normal value for unions in contract expiration years, when a new contract must be negotiated. We find that during contract expiration years, unions increase their proposal rate by one-quarter (and by two-thirds during contentious negotiations); nonunion shareholders do not increase their proposal rate in expiration years. Unions are much more likely than other shareholders to make proposals concerning executive compensation, especially during expiration years. Opportunistic union proposals are associated with better wage outcomes for union workers. Union proposals primarily originate from their general funds, not the larger Taft-Hartley pension funds, which have legal barriers to activism. Overall, the evidence suggests a potential downside to enhanced shareholder rights.
Analyst Coverage Network and Corporate Financial Policies
AbstractThis paper shows that sell-side analysts play an important role in propagating corporate financial policy choices, such as leverage and equity issuance decisions across firms. Using exogenous characteristics of analyst network peers as well as the “friends-of-friends” approach from the network effects literature to identify peer effects, we find that exogenous changes to financial policies of firms covered by an analyst leads other firms covered by the same analyst to implement similar policy choices. We find that a one standard deviation increase in peer firm average leverage is associated with a 0.35 standard deviation increase in a firm's leverage, and a one standard deviation increase in the frequency of peers’ equity issuance leads to a 29.6% increase in the likelihood of issuing equity. We show evidence that these analyst network peer effects are distinct from industry peer effects and are more pronounced among peers connected by analysts that are more experienced and from more influential brokerage houses.
London School of Economics and Political Science
- G3 - Corporate Finance and Governance