Should Shareholders Just Vote No? Examining the Impact of Shareholder Proposals

Abstract

We examine the concept of shareholder voice which serves as a mechanism for outside owners to try to induce favourable performance outcomes and/or desirable changes in firms by conveying the expectations of shareholders to firm management. We compile a dataset of shareholder proposals which, if accepted, would increase the relative power and direct access of shareholders in large, publicly listed US corporations. Using CARs and a regression discontinuity approach, we find that it matters how close a vote is to the pass/fail threshold. Our evidence offers little support for the notion that shareholders desire increased access and power except in firms where the existing governance quality is particularly low and managers are highly entrenched. Arguably, shareholders consider existing shareholder access and power sufficient and vote against proposals that would increase their power, possibly reflecting a perception that executives are better positioned to make firm-level decisions. Our evidence suggests that while shareholders may desire some degree of improved power, they are concerned that additional shareholder power will concentrate in the hands of powerful and influential shareholders. Thus, greater shareholder power could reduce the overall welfare of shareholders.