Determinants and consequences of shareholder proposals

The cases of board election, charter amendment, and profit disposal

Research output: Contribution to journalArticle

Abstract

By investigating shareholder proposals in Japan during 2004–2013, this study aims to address the question whether exercising legally powerful shareholder rights has an impact on the management. Compared with their counterparts in the United States, Japanese shareholders are entitled to more statutory rights, including binding shareholder resolutions on issues relating to board election, charter amendment, and profit disposal. The empirical tests reveal several important results. First, different types of shareholder proposals are triggered by varying firm characteristics. Second, resolutions on the board election and charter amendments relating to corporate governance receive higher votes than those for profit disposal. Voting outcome is also positively associated with foreign shareholding, duration of the general meeting, and the firm's history of receiving proposals. Moreover, resolutions initiated by large shareholders have positive impacts on the target firms, which reported positive announcement-associated abnormal returns. Improvements in the operating performance are observed for firms passing board election resolutions and firms receiving charter amendment proposals from large shareholders. The management also increased share buyback and dividend payout in response to demands by large shareholders, although there was no significant change in the post-resolution operating performance. Overall, the results indicate that statutorily powerful shareholder rights, when exercised by large shareholders, can have a positive impact.
Original languageEnglish
JournalJournal of Corporate Finance
Volume45
DOIs
Publication statusPublished - 2017

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Disposal
Elections
Charter
Amendments
Profit
Shareholders
Large shareholders
Operating performance
Shareholder rights
Empirical test
Firm characteristics
Shareholding
Buyback
Dividend payout
Voting
Vote
Corporate governance
Announcement
Abnormal returns
Japan

Cite this

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title = "Determinants and consequences of shareholder proposals: The cases of board election, charter amendment, and profit disposal",
abstract = "By investigating shareholder proposals in Japan during 2004–2013, this study aims to address the question whether exercising legally powerful shareholder rights has an impact on the management. Compared with their counterparts in the United States, Japanese shareholders are entitled to more statutory rights, including binding shareholder resolutions on issues relating to board election, charter amendment, and profit disposal. The empirical tests reveal several important results. First, different types of shareholder proposals are triggered by varying firm characteristics. Second, resolutions on the board election and charter amendments relating to corporate governance receive higher votes than those for profit disposal. Voting outcome is also positively associated with foreign shareholding, duration of the general meeting, and the firm's history of receiving proposals. Moreover, resolutions initiated by large shareholders have positive impacts on the target firms, which reported positive announcement-associated abnormal returns. Improvements in the operating performance are observed for firms passing board election resolutions and firms receiving charter amendment proposals from large shareholders. The management also increased share buyback and dividend payout in response to demands by large shareholders, although there was no significant change in the post-resolution operating performance. Overall, the results indicate that statutorily powerful shareholder rights, when exercised by large shareholders, can have a positive impact.",
author = "Tsung-ming Yeh",
year = "2017",
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AU - Yeh, Tsung-ming

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AB - By investigating shareholder proposals in Japan during 2004–2013, this study aims to address the question whether exercising legally powerful shareholder rights has an impact on the management. Compared with their counterparts in the United States, Japanese shareholders are entitled to more statutory rights, including binding shareholder resolutions on issues relating to board election, charter amendment, and profit disposal. The empirical tests reveal several important results. First, different types of shareholder proposals are triggered by varying firm characteristics. Second, resolutions on the board election and charter amendments relating to corporate governance receive higher votes than those for profit disposal. Voting outcome is also positively associated with foreign shareholding, duration of the general meeting, and the firm's history of receiving proposals. Moreover, resolutions initiated by large shareholders have positive impacts on the target firms, which reported positive announcement-associated abnormal returns. Improvements in the operating performance are observed for firms passing board election resolutions and firms receiving charter amendment proposals from large shareholders. The management also increased share buyback and dividend payout in response to demands by large shareholders, although there was no significant change in the post-resolution operating performance. Overall, the results indicate that statutorily powerful shareholder rights, when exercised by large shareholders, can have a positive impact.

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