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Loews Philadelphia, Commonwealth Hall B
American Finance Association
Shareholder Heterogeneity and Corporate Governance
Sunday, Jan. 7, 2018 8:00 AM - 10:00 AM
- Chair: Martin Schmalz, University of Michigan
Institutional Investors and Hedge Fund Activism
AbstractDue to their relatively small holdings in a target firm, hedge funds activists need the cooperation of other investors, generally institutional owners who can have a significant impact on the success of the activist’s campaign. We develop three measures of institutional ownership that reflects likelihood of activist support. Over the 2004-2012 sample period, we find that the friendly institutional owners are associated with higher stock returns (both short term and long term) and higher operating performance of the target firm. Consistent with these investors being valuable to activists, we find that ownership by activism-friendly institutions also significantly increases the likelihood of being targeted by hedge fund activists. The paper is one of the first to document that composition of institutional ownership has a significant impact on the likelihood of and value created from hedge fund activism.
AbstractBy introducing a shareholder with many votes (a blockholder) into a standard voting model, we uncover striking results. First, an unbiased blockholder may not vote with all of her shares. This is efficient because it prevents her from drowning out the information in others' votes. Second, if this blockholder announces her vote upfront, shareholders may ignore their information and vote with the blockholder to support her superior information. The results are robust to permitting information acquisition and trade. We also show that shareholders may coordinate to oppose a blockholder who is biased. Regulations discouraging abstention, strategic behavior, and/or coordination reduce efficiency.
Free-riders and Underdogs: Participation in Corporate Voting
AbstractThis paper studies voting participation in a corporate context. We show in a rational-choice model how shareholder heterogeneity and preferences affect their decision to vote. We exhibit a free-rider effect (agreement among shareholders leads to less participation) and an underdog effect (disagreement leads to more participation). Participation rates contain information about the importance of proposals to shareholders. The model produces a formula that allows us to estimate the implied importance controlling for ownership structure. We use the formula to document novel stylized facts in a sample of 18,520 corporate voting proposals of US firms: shareholder proposals are perceived as more important than management proposals, and the most important shareholder proposals are about restructuring.
Michigan State University
Southern Methodist University
University of Mannheim
- G3 - Corporate Finance and Governance