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Corporate Governance: Creditor and Shareholder Monitoring

Paper Session

Sunday, Jan. 6, 2019 8:00 AM - 10:00 AM

Hilton Atlanta, 209-210-211
Hosted By: American Finance Association
  • Chair: Victoria Ivashina, Harvard Business School

Management (of) Proposals

Ilona Babenko
,
Arizona State University
Goeun Choi
,
Arizona State University
Rik Sen
,
University of New South Wales

Abstract

Using shareholder voting records on management proposals for the period 2003-2015, we study whether the voting process is unbiased. We find evidence of vote manipulation by management. Specifically, the frequency of proposals that receive votes just above the threshold for passage is significantly greater than the frequency of proposals that do not pass. The strategic behavior by management is more pronounced for firms with low institutional ownership and less independent boards and for proposals receiving a negative ISS recommendation. We identify new mechanisms by which executives use their access to real-time vote information to influence the outcome, such as by adjourning a meeting and selective campaigning. Finally, our empirical results indicate that passage of a marginal management proposal does not create shareholder value. Using a theoretical framework, we show that this result implies that managerial influence on the voting process is value-destroying.

Stakeholder Orientation and Firm Value

Martijn Cremers
,
University of Notre Dame
Scott Guernsey
,
University of Cambridge
Simone Sepe
,
University of Arizona

Abstract

This paper analyzes enhanced director discretion to consider stakeholder interests by exploiting
the quasi-natural experiment provided by the staggered adoption of directors’ duties laws in 35
U.S. states from 1984 to 2006. We find that these laws result in economically and statistically
significant increases in firm value, especially for firms that are larger, more complex or innovative
and with stronger stakeholder relationships. Our results suggest that enhanced director discretion
promotes long-term value by reducing contracting costs with stakeholders (the “bonding
hypothesis”) and mitigating the externalities that stakeholders may bear due to conflicts of interests
with shareholders (the “stakeholder model hypothesis”).

Coordinated Engagements

Elroy Dimson
,
University of Cambridge
Oguzhan Karakas
,
University of Cambridge
Xi Li
,
London School of Economics

Abstract

We study the nature of and outcomes from coordinated engagements by a prominent international network of shareholder activists cooperating to influence firms on environmental and social issues. We find a two-tier engagement strategy, combining lead active investors with supporting investors, is effective in successfully achieving the stated engagement goals and subsequently improving target performance. An activist is more likely to lead the collaborative dialogue when its stake in the target firm is higher and when the target is domestic. Success rates are elevated when the lead investors are domestic, supporting investors are international, and the investor coalition is influential.

Litigating Innovation: Evidence from Securities Class Action Lawsuits

Elisabeth Kempf
,
University of Chicago
Oliver Spalt
,
Tilburg University

Abstract

Low-quality securities class action lawsuits disproportionally target firms with valuable innovation output and impose a substantial implicit ``tax'' on these firms. We establish this fact using data on class action lawsuits against U.S. corporations between 1996 and 2011 and the private economic value of a firm's newly granted patents as a measure of valuable innovation output. Our results challenge the widely-held view that it is the greater failure propensity of innovative firms that drives litigation risk. Instead, our findings suggest that valuable innovation output makes a firm an attractive litigation target. More broadly, our results provide new evidence to support the view that the current class action litigation system may have adverse effects on the competitiveness of the U.S. economy.
Discussant(s)
Nadya Malenko
,
Boston College
Rui Albuquerque
,
Boston College
Giorgia Piacentino
,
Columbia University
Scott Duke Kominers
,
Harvard University
JEL Classifications
  • G3 - Corporate Finance and Governance