Analysis of the Wealth Effects of Shareholder Proposals
July 22, 2008
Joao Dos Santos, M.S., Chen Song, Ph.D, Navigant Consulting
U.S. Chamber of Commerce
Abstract
Every proxy season, companies receive proposals from shareholders representing a variety of demands. In recent years, researchers have documented increased involvement by institutional investors (e.g., public pension funds) in company affairs. When negotiations between companies and such activist shareholders fail, the result is often a shareholder proxy proposal, an action that causes both parties to incur costs in the form of time and expense. We have, at the request of the U.S. Chamber of Commerce, evaluated the wealth effects of shareholder proposals on target firms. After conducting a review of the academic literature and performing empirical tests for a sample of selected proposals, we have reached the following conclusions:
- There is little definite evidence in academic literature that announcements related to shareholder proposals result in a material increase in target companies' market value. In addition, there is little evidence of long-run improvements in either operating or stock market performance for target firms.
- Our empirical results, based upon a sample of ten firms, are consistent with these conclusions. We find no evidence of a significant overall short-run or long-run improvement in market value for the firms in our sample.
- While there is limited information available in the public domain, anecdotal evidence confirms what is intuitively obvious - both target firms and the sponsors incur costs as a result of the proxy proposal process.
- Overall, we find little conclusive evidence that shareholder proposals tangibly improve firm value. Given the costs associated with the proxy process and the unproven impact on company value, some consideration should be given to the net benefits of such initiatives.
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