Does the director election system matter? Evidence from majority voting

Does the director election system matter? Evidence from majority voting We examine the effect of a change in the director election system—the switch from a plurality voting standard to a more stringent standard known as majority voting (MV). Using a regression discontinuity design, we document abnormal returns of 1.43–1.60 % around annual meeting dates where shareholder proposals to adopt MV are voted upon, suggesting that shareholders perceive the adoption of MV as value-enhancing. We document an increase in boards’ responsiveness to shareholders at MV firms. In particular, relative to a propensity score-matched control sample, firms adopting MV exhibit an increase in the rate of implementation of shareholder proposals supported by a majority vote and in the responsiveness to votes withheld from directors up for election. We do not find a relation between votes withheld and subsequent director turnover, regardless of the election standard. Overall, it appears that, rather than a channel to remove specific directors, director elections are viewed by shareholders as a means to obtain specific governance changes and that, in this respect, their ability to obtain such changes is stronger under a MV standard. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Accounting Studies Springer Journals

Does the director election system matter? Evidence from majority voting

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Publisher
Springer US
Copyright
Copyright © 2014 by Springer Science+Business Media New York
Subject
Economics / Management Science; Accounting/Auditing; Finance/Investment/Banking; Public Finance & Economics
ISSN
1380-6653
eISSN
1573-7136
D.O.I.
10.1007/s11142-014-9284-9
Publisher site
See Article on Publisher Site

Abstract

We examine the effect of a change in the director election system—the switch from a plurality voting standard to a more stringent standard known as majority voting (MV). Using a regression discontinuity design, we document abnormal returns of 1.43–1.60 % around annual meeting dates where shareholder proposals to adopt MV are voted upon, suggesting that shareholders perceive the adoption of MV as value-enhancing. We document an increase in boards’ responsiveness to shareholders at MV firms. In particular, relative to a propensity score-matched control sample, firms adopting MV exhibit an increase in the rate of implementation of shareholder proposals supported by a majority vote and in the responsiveness to votes withheld from directors up for election. We do not find a relation between votes withheld and subsequent director turnover, regardless of the election standard. Overall, it appears that, rather than a channel to remove specific directors, director elections are viewed by shareholders as a means to obtain specific governance changes and that, in this respect, their ability to obtain such changes is stronger under a MV standard.

Journal

Review of Accounting StudiesSpringer Journals

Published: Apr 30, 2014

References

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