Proxy Issue Contests: Determinants of Voting Outcomes
Posted: 12 May 1997
Date Written: March 1997
Abstract
This paper tests three related hypotheses on factors that drive voter outcome in institution-sponsored proxy issue contests dealing with corporate governance proposals. First, the effect of signals on the potential value of a proposal is tested. In particular, shareholders use the text of the proposal, the sponsor identity, and measures of the proxy company's corporate governance structure to determine the value of the proposal. Second, the significance of institutional investor vote holdings is tested. The paper finds that potentially wealth-enhancing proposals receive a higher for-vote percentage where institutional investors willing to undertake the expense of investigating a proposal and communicating with other shareholders are present. Proposals, conversely, do poorly to the extent management, directors, and insiders hold a large percentage of the voting shares. Third, the paper tests one particular factor that may affect voting outcomes: The presence of institutional investors with some relationship ties with either the proxy company or the proxy company's board of directors. The paper finds that related institutional investors act to reduce the expected for-vote percentage. Evidence also exists that companies relatively more vulnerable to a proxy issue contest tend to establish a greater amount of ties with institutional investors.
JEL Classification: G34
Suggested Citation: Suggested Citation