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

We define annual shareholder meetings as contentious if a significant fraction of shareholders are expected to vote against management’s recommendation on one or more of the items on the ballot, a signal that shareholders are increasing their monitoring activity. 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, when investors learn about the contentious nature of the meeting and form expectations about its likely impact on firms’ behavior. We find that abnormal stock returns prior to contentious meetings are significantly positive and higher than 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 shareholder activism via voting to have a positive impact on firm value, on average. JEL Classification: G34, G38, J33, M12