Corporate governance and shareholder initiatives: Empirical evidence

The Effects of Institutional Investor Objectives on Firm Valuation and Governance

“…Several papers document the ability of institutional investors to acquire information, improve governance, and make markets more efficient (Lakonishok, Shleifer, Vishny, 1992;Nesbitt, 1994;Sias and Starks, 1997;Nagel, 2005;Barber and Odean, 2008) while other research finds results suggestive of opportunism without long-term benefit, and with potentially destabilizing value effects (Gillian, 1995;Karpoff, Malatesta, and Walkling, 1996;Smith, 1996;Wermers, 1999;Barton and Wiseman, 2014). The differential effect on firm value by institutional investor type that we document provides a view towards reconciling this tension in the literature.…”

“…Some studies have shown that institutional investors improve governance (Gillan and Starks, 2000;Hartzell and Starks, 2003), while others find no effect (Agarwal and Knoeber, 1996;Karpoff, Malatesta, and Walkling, 1996). Recent work in asset pricing research also demonstrates that holding period matters for performance studies (Kamara, Korajcyk, Lou, Sadka, 2016;Chaudhuri and Lo, 2016).…”

“…While the literature generally accepts that institutional investors are more informed and allow markets to be more efficient (Sias and Starks, 1997;Nagel, 2005;Barber and Odean, 2008), there are contradicting results and arguments among both academics and practitioners over the institutional benefits to governance and costs of induced myopia. For example, Gillian (1995), Karpoff, Malatesta, and Walkling (1996), Smith (1996), and Wahal (1996) find no long-term effects from shareholder activism while Nesbitt (1994) finds that firms targeted by CalPERS outperform in subsequent years. More recently, Brav, Jiang, Partnoy, and Thomas (2008) find a positive abnormal return for firms targeted by hedge fund activism and Boone and White (2015) find that higher institutional ownership is associated with greater management disclosure and lower information asymmetry.…”

Study on theories and mechanisms of corporate governance

“…Shareholder activists put forward proxy proposals at AGMs for raising concern about corporate governance or corporate performance. Firms with poor performance (measured by the market-to-book ratio, operating return, and sales growth) attracted more shareholder-initiated proxy proposals (Karpoff et al, 1996;Romano, 2001). However, Karpoff et al (1996) found little evidence of improvement in operating incomes post proposals and such proposals were found to have negligible effect on company share values and top management turnover.…”

“…Firms with poor performance (measured by the market-to-book ratio, operating return, and sales growth) attracted more shareholder-initiated proxy proposals (Karpoff et al, 1996;Romano, 2001). However, Karpoff et al (1996) found little evidence of improvement in operating incomes post proposals and such proposals were found to have negligible effect on company share values and top management turnover. Gillan and Starks (2000) found that proposals sponsored by institutions or through coordinated activities receive significantly more favourable votes than those sponsored by independent individuals or religious organisations.…”