Date: December 1993
Creator: Forjan, James M. (James Martin)
Description: Corporate governance issues have become increasingly important to financial managers and shareholders. Firms that are plagued by poor performance, incompetent managers, or excess agency costs have become the subject of a dramatic increase in shareholder activism. Dissident shareholders, who are unable to launch costly takeover bids or proxy contests, have initiated a process of governance reform through the use of shareholder sponsored proposals. Shareholder proposals are a direct attempt to reverse operating or voting policies, such as a proposal to repeal a classified board. Managers announce shareholder proposals in a proxy statement and typically include a vote recommendation against the proposal. In the first essay, I find an unfavorable stock price reaction to the announcement of a shareholder proposal. In some cases, however, management supports the proposal and negotiates an agreement with the proposing shareholder. Stock prices react favorably to a settlement announcement. If managers are willing to negotiate with shareholders, they are perceived to be acting in the best interest of shareholders. If managers are unwilling, shareholders believe a severe agency problem exists. In the second essay, the effect that ownership structure has on voting outcomes of shareholder proposals is examined. I find a direct relationship between the percentage ...
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