ACCOUNTING INFORMATION AND CORPORATE GOVERNANCE Market and Analyst Reactions to Earnings of Firms Engaged in Proxy Contests

This paper studies market and analyst reactions to earnings (i) during a proxy contest for board seats and (ii) after a proxy-contest-induced management change. Despite indications of earnings management during the proxy contest, market and analyst reactions are more pronounced than in prior periods, and earnings surprises explain more of the cross-sectional variation in these reactions. Market and analyst reactions to earnings released after a successful proxy contest are less pronounced than in prior periods and earnings surprises explain less of the variation in these reactions, perhaps due to new managements’ tendency to take an earnings ‘bath’.