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Corporate Governance

Paper Session

Sunday, Jan. 7, 2018 10:15 AM - 12:15 PM

Loews Philadelphia, Regency Ballroom A
Hosted By: American Finance Association
  • Chair: Doron Levit, University of Pennsylvania

CEO Power and Board Dynamics

John Graham
Duke University
Hyunseob Kim
Cornell University
Mark Leary
Washington University-St. Louis


We use a new panel dataset to examine corporate governance from 1918 to 2011 in the context of a bargaining model between the CEO and board of directors. Substantial director turnover occurs when a new CEO is hired but, despite this turnover, board structure is persistent. The changes in board structure that do occur are consistent with economic theory: (i) In the year that a new CEO is hired, board independence increases significantly, consistent with new CEOs having less bargaining power initially; (ii) As the CEO’s tenure (and bargaining power) increases, an additional year on the job is associated with a significant decline in board independence, an increase in the probability that the CEO holds the board chairman title, and an increase in compensation; (iii) The tenure-board independence relation is weaker when there is more uncertainty about the CEO’s ability and after events that reduce CEO power, such as targeting by activist investors; (iv) Powerful CEOs are less likely to be replaced conditional on poor firm performance; (v) Finally, event studies document a positive market reaction when powerful CEOs die in office, in contrast to no market reaction to typical CEO deaths, consistent with powerful CEOs becoming entrenched.

How are Shareholder Votes and Trades Related?

Sophia Zhengzi Li
Michigan State University and Rutgers University
Miriam Schwartz-Ziv
Michigan State University


We study the relation between shareholder votes and trading. We demonstrate that around the shareholder meeting date, the abnormal daily volume is substantially larger compared to the pre-voting period. This increase exists even for routine votes, and it is particularly large for important votes and when shareholders are unsupportive of management. We next analyze the vote-trade relationship at the investor level, using data on daily trades and the corresponding votes of the same funds. We find that before the meetings, funds’ trades and votes are positively correlated. However, funds update their trading patterns when a vote outcome contradicts the vote they cast. We also show that votes catalyze trading particularly when the price reaction is large, higher degrees of information asymmetries exist, and investors are not distracted.

Quasi-Insider Shareholder Activism: Corporate Governance at the Periphery of Control

Mitch Towner
University of Arizona
Aazam Virani
University of Arizona
Jonathan Cohn
University of Texas-Austin


We document the role of investors at the periphery of control within a firm – “quasi-insiders” - in shareholder activism. These agents, including founders and former executives, launch campaigns in smaller, worse-performing firms than traditional hedge fund activists, seek greater control, and employ more aggressive tactics. While they are less likely to achieve the stated objectives of their campaigns, these campaigns are associated with positive abnormal returns comparable to those in hedge fund campaigns and subsequent improvements in operating performance. Overall, our results suggest that quasi-insiders play an important and effective role as activists in firms that are less likely to be targeted by hedge funds.

Blockholders Diversity: Effect of Polyphony on the Power of Monitoring

Ekaterina Volkova
University of Melbourne


According to my new and extensive data on all US public companies, the majority of them have
multiple blockholders (large shareholders). These blockholders could differ along several characteristics
even within one company. Diversity between blockholders within a firm could have a
positive and synergistic impact on its value. Alternatively, conflicting objectives and interests
may cause diversity to adversely impact company operations. To investigate the resulting impact
of blockholders diversity on company value, I construct diversity measures reflecting their
heterogeneity in identity, portfolio size and investment horizon. Using shocks from blockholder
acquisitions of financial firms and unexpected increases in payouts they receive from other positions
to identify the causality channel, I find that block diversity has a strong negative influence
on company value and operations. This result is robust to a variety of specifications and to exclusion
of different groups of blockholders. Additionally, simulated placebo tests reject alternative
explanations related to other observed and unobserved characteristics of block ownership.
Amil Dasgupta
London School of Economics
Nickolay Gantchev
Southern Methodist University
Dirk Jenter
London School of Economics
Alan D. Crane
Rice University
JEL Classifications
  • G3 - Corporate Finance and Governance