The Costs and Benefits of Shareholder Democracy: Gadflies and Low-Cost Activism

Gantchev, Nickolay; Giannetti, Mariassunta

doi:10.1093/rfs/hhaa128

Cited by 60 publications

(8 citation statements)

References 53 publications

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“…Many papers use an ESG variable assuming that more is always better (even within the same context)—higher ESG scores, more frequent votes for ESG proposals, or tying pay to more ESG metrics. But, as discussed, companies can overinvest in ESG (Masulis & Reza, 2015), and investors might overly micromanage it (Gantchev & Giannetti, 2021). Moreover, in addition to U‐shaped or hump‐shaped results, insignificant results can significantly advance knowledge—as is commonly attributed to Thomas Edison, “I have not failed.…”

Section: Implications For Researchmentioning

confidence: 99%

“…Regulators, the media, and investors are cracking down on ESG funds for not being ESG enough—for holding stocks in brown industries, and for sometimes voting against ESG proposals. But blanket divestment is often not the most effective way to improve corporate ESG behavior (Edmans et al., 2022) and many ESG proposals do not create long‐term value (Gantchev & Giannetti, 2021). Even setting aside these concerns, funds should absolutely be held to account for doing what they say.…”

Section: Esg Fundsmentioning

confidence: 99%

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The end of ESG

Edmans

2023

Financial Management

195

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ESG is both extremely important and nothing special. It's extremely important because it's critical to long-term value, and so any academic or practitioner should take it seriously, not just those with "ESG" in their research interests or job title. Thus, ESG doesn't need a specialized term, as that implies it's niche-considering long-term factors isn't ESG investing; it's investing. It's nothing special since it's no better or worse than other intangible assets that create long-term financial and social returns, such as management quality, corporate culture, and innovative capability. Companies shouldn't be praised more for improving their ESG performance than these other intangibles; investor engagement on ESG factors shouldn't be put on a pedestal compared to engagement on other value drivers. We want great companies, not just companies that are great at ESG.

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Section: Implications For Researchmentioning

confidence: 99%

Section: Esg Fundsmentioning

confidence: 99%

The end of ESG

Edmans

2023

Financial Management

195

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“…Proxy-to-meeting CAR before contentious director elections and management proposals are not significantly different from zero, nor are they different from noncontentious meetings. As for contentious shareholder proposals, the proxy-to meeting CAR are slightly negative and, for certain thresholds (30% and 40%), significantly more so than before noncontentious meetings, perhaps an indication that at well-performing firms, shareholder proposals are generally viewed as a distraction (Gantchev and Giannetti 2020). 13 Overall, our analyses in Table 3 indicate a positive association between premeeting returns and our proxies for a contentious meeting, consistent with investors expecting instances of activism via voting to have a positive net effect, on average, especially in poorly performing firms.…”

Section: Stock Returns Before Annual Meetings: the Role Of Contentiou...mentioning

confidence: 97%

Investors' Perceptions of Activism via Voting: Evidence from Contentious Shareholder Meetings*

Brochet

Ferri

Miller

2021

Contemporary Accting Res

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Motivated by the increasing influence of shareholder votes on corporate policies, we examine investors' perceptions of activism via voting. To identify instances of activism via voting, we focus on annual meetings with at least one ballot item where a substantial fraction of shareholders is expected to vote against management's voting recommendation, indicating an increase in their monitoring activity. We define such meetings as "contentious." Using a sample of almost 28,000 meetings between 2003 and 2012, we examine stock returns over the period between the proxy filing and the annual meeting. This period captures when investors learn about the contentious nature of the upcoming meeting and form expectations about its likely impact on firms' policies. We find that abnormal stock returns prior to contentious meetings are significantly positive and higher than those prior to noncontentious meetings. These higher abnormal returns increase with the contentiousness of the meeting; are more pronounced in firms with poor past performance, which are more likely to respond to shareholder pressure; and persist after controlling for firm-specific news and proxies for risk factors. Our results are consistent with investors' expecting activism via voting to have a positive impact on firm value, on average, and cast doubts on regulatory attempts to restrict the use of shareholder votes.

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“…Voting also reflects these misalignments. Proposals from individual investors (so-called 'gadflies') rarely receive majority support, and, when they pass (often due to directors' career concerns), they tend to destroy value (Gantchev and Giannetti 2020). Proposals from religious groups and social activists often receive the lowest support (Thomas and Cotter 2007).…”

Section: Which Users Engage With the Firm?mentioning

confidence: 99%

The role of users’ engagement in shaping financial reporting: should activists target accounting more?

Osma

Grande-Herrera

2021

Accounting and Business Research

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We define accounting engagement as stakeholders' actions taken with the intention of influencing corporate reporting. Using this definition, we review the literature on such activism and discuss avenues for research. The evidence reviewed suggests accounting engagement is rare. We reflect on the reasons of this, given evidence on increasing overt engagement on other corporate issues, such as managerial compensation and governance, social, and environmental responsibility. Both information production and information acquisition costs have decreased over time, raising further questions about why engagement has not increased. We consider potential reasons linked to concerns over whether financial reporting meets users' information needs, particularly, given the emergence of new users and the role of new technologies in the diffusion and processing of information. These concerns have accompanied claims of increasing complexity of financial accounting and the threat of information overload.

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The Costs and Benefits of Shareholder Democracy: Gadflies and Low-Cost Activism

Cited by 60 publications

References 53 publications

The end of ESG

The end of ESG

Investors' Perceptions of Activism via Voting: Evidence from Contentious Shareholder Meetings*

The role of users’ engagement in shaping financial reporting: should activists target accounting more?

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