Hostname: page-component-6bb9c88b65-2jdt9 Total loading time: 0 Render date: 2025-07-23T01:50:32.566Z Has data issue: false hasContentIssue false
  • English
  • Français

Managerial Response to Shareholder Empowerment: Evidence from Majority-Voting Legislation Changes

Published online by Cambridge University Press:  18 March 2025

Vicente Cuñat Open the ORCID record for Vicente Cuñat [Opens in a new window] ,
Yiqing Lü  and
Hong Wu
Vicente Cuñat*
Affiliation:
Department of Finance, https://ror.org/0090zs177 The London School of Economics, Centre for Economic Policy Research (CEPR), and European Corporate Governance Institute (ECGI)
Yiqing Lü
Affiliation:
https://ror.org/02vpsdb40 New York University Shanghai yiqing.lu@nyu.edu
Hong Wu
Affiliation:
Department of Accountancy, City University of Hong Kong hong.wu.pitt@gmail.com
*
V.Cunat@lse.ac.uk (corresponding author)
Rights & Permissions [Opens in a new window]

Abstract

Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the ‘Save PDF’ action button.

We study how managers react to shareholder empowerment that makes votes on shareholder proposals binding. We empirically exploit staggered legislative changes that introduce such empowerment for proposals regarding majority voting in director elections. We find that managers become more responsive to shareholder requirements by initiating majority voting through either management proposals or governance guidelines. This early action crowds out shareholder proposals. Further results suggest compromised implementation: Managers adopt provisions that give them greater control over the channel of implementation and allow them to retain directors who fail in elections. Our results suggest that managers retain substantial discretion to modulate shareholder requirements. This article was partially completed when Wu was at Fudan University. Any errors are attributable solely to the authors.

Information

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , First View , pp. 1 - 26
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2025. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

We thank an anonymous referee and Ran Duchin (the editor) for their useful comments. We also thank Reena Aggarwal, Ilona Babenka, Andrew Baker, Lucian Bebchuk, Alon Brav, Ofer Eldar, Denis Gromb, Swasti Gupta-Mukherjee, Doron Levit, Michelle Lowry, Nadya Malenko, John Mastusaka, Seungjoon Oh, Edmund Schuster, Ralph Walkling, David Yermack, and audiences at the 2021 LSE-UCL Law and Finance Seminar, 2021 FIRS, 2020 American Finance Association Annual Meeting, The 2018 Spanish Economic Association Annual Conference, 2019 FMA Europe Conference, 2019 CICF, The Erasmus School of Economics, The Technical University of Munich, NYU Shanghai, and Fudan University.

References

Arrow, K. J. The Limits of Organization. New York, NY: W. W. Norton & Company (1974).Google Scholar
Babenko, I.; Choi, G.; and Sen, R.. “Management (of) Proposals.” Available at SSRN 3155428 (2023).Google Scholar
Bach, L., and Metzger, D.. “How Close Are Close Shareholder Votes?” Review of Financial Studies, 32 (2019), 3183–3214Google Scholar
Bainbridge, S. M. Corporation Law and Economics. Golata, CA: Foundation Press (2002).Google Scholar
Bainbridge, S. M. “Director Primacy and Shareholder Disempowerment.” Harvard Law Review, 119 (2005), 1735–1758.Google Scholar
Baker, A. C.; Larcker, D. F.; and Wang, C. C.. “How Much Should We Trust Staggered Difference-in-Differences Estimates?” Journal of Financial Economics, 144 (2022), 370–395.Google Scholar
Bebchuk, L. A. “Limiting Contractual Freedom in Corporate Law: The Desirable Constraints on Charter Amendments.” Harvard Law Review, 102 (1989), 1820–1860.Google Scholar
Bebchuk, L. A. “The Case for Shareholder Access: A Response to the Business Roundtable.” Case Western Reserve Law Review, 55 (2004), 557–568.Google Scholar
Cai, J.; Garner, J. L.; and Walkling, R. A.. “Electing Directors.” Journal of Finance, 64 (2009), 2389–2421.Google Scholar
Cai, J.; Garner, J. L.; and Walkling, R. A.. “A Paper Tiger? An Empirical Analysis of Majority-Voting.” Journal of Corporate Finance, 21 (2013), 119–135.Google Scholar
Cengiz, D.; Dube, A.; Lindner, A.; and Zipperer, B.. “The Effect of Minimum Wages on Low-Wage Jobs.” Quarterly Journal of Economics, 134 (2019), 1405–1454.Google Scholar
Cuñat, V.; Gine, M.; and Guadalupe, M.. “The Vote Is Cast: The Effect of Corporate Governance on Shareholder Value.” Journal of Finance, 67 (2012), 1943–1977.Google Scholar
Denes, M. R.; Karpoff, J. M.; and McWilliams, V. B.. “Thirty Years of Shareholder Activism: A Survey of Empirical Research.” Journal of Corporate Finance, 44 (2017), 405–424.Google Scholar
Donaldson, J. R.; Malenko, N.; and Piacentino, G.. “Deadlock on the Board.” Review of Financial Studies, 33 (2020), 4445–4488.Google Scholar
Easterbrook, F. H., and Fischel, D. R.. “The Corporate Contract.” Columbia Law Review, 89 (1989), 1416–1448.Google Scholar
Ertimur, Y.; Ferri, F.; and Oesch, D.. “Does the Director Election System Matter? Evidence from Majority-Voting.” Review of Accounting Studies, 20 (2015), 1–41.Google Scholar
Gantchev, N. “The Costs of Shareholder Activism: Evidence from a Sequential Decision Model.” Journal of Financial Economics, 107 (2013), 610–631.Google Scholar
Gardner, J. “Two-Stage Differences in Differences.” arXiv preprint arXiv:2207.05943 (2022).Google Scholar
Gillan, S. L., and Starks, L. T.. “The Evolution of Shareholder Activism in the United States.” Journal of Applied Corporate Finance, 19 (2007), 55–73.Google Scholar
Goodman-Bacon, A.; Goldring, T.; and Nichols, A.. “BACONDECOMP: Stata Module to Perform a Decomposition of Difference-in-Differences Estimation” (2019).Google Scholar
Hsu, P. H.; Lü, Y.; Wu, H.; and Xuan, Y.. “Director Job Security and Corporate Innovation.” Journal of Financial and Quantitative Analysis, 59 (2024), 652–689.Google Scholar
Levit, D., and Malenko, N.. “Nonbinding Voting for Shareholder Proposals.” Journal of Finance, 66 (2011), 1579–1614.Google Scholar
Lipton, M.; Rosenblum, S. A.; Niles, S. V.; Lewis, S. J.; and Watanabe, K.. “The New Paradigm: A Roadmap for an Implicit Corporate Governance Partnership Between Corporations and Investors to Achieve Sustainable Long-Term Investment and Growth.” International Business Council of the World Economic Forum (2016).Google Scholar
Listokin, Y. “Management Always Wins the Close Ones.” American Law and Economics Review, 10 (2008), 159–184.Google Scholar
Matsusaka, J. G.; Ozbas, O.; and Yi, I.. “Can Shareholder Proposals Hurt Shareholders? Evidence from Securities and Exchange Commission No-Action-Letter Decisions.” Journal of Law and Economics, 64 (2021), 107–152.Google Scholar
Min, G. “Shareholder Voice in Corporate Charter Amendments.” Journal of Corporate Law, 43 (2017), 289.Google Scholar
Pozen, R. C. “Institutional Perspective on Shareholder Nominations of Corporate Directors.” Business Lawyer, 95 (2003), 95–108.Google Scholar
Proxy Pulse. Available at https://www.broadridge.com/_assets/pdf/broadridge-proxypulse-2020-review.pdf (2019).Google Scholar
Supplementary material: File

Cuñat et al. supplementary material

Cuñat et al. supplementary material
Download Cuñat et al. supplementary material(File)
File 247.8 KB