The Efficacy of Shareholder Voting: Evidence from Equity Compensation Plans

Armstrong, Christopher; Gow, Ian D.; Larcker, David F.

doi:10.1111/1475-679x.12023

Cited by 126 publications

(29 citation statements)

References 52 publications

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“…Ertimur et al (2014) document positive abnormal returns around meeting dates, when shareholder proposals related to the adoption of majority voting systems are passed. Armstrong et al (2013) study the effects of shareholder voting support for management‐sponsored equity compensation plans on CEO compensation. Following Cuñat et al (2012), we use firms whose proposals just pass or just fall short of the majority threshold as our identification strategy.…”

Section: Variable Measurement and Research Designmentioning

confidence: 99%

Corporate Governance and Earnings Management: Evidence from Shareholder Proposals*

Fan

Radhakrishnan²,

Zhang³

2020

Contemporary Accting Res

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We examine the causal effects of corporate governance on earnings management using shareholder‐sponsored proposals that pass or fail by a small margin of votes in annual shareholder meetings. This setting provides a causal estimate that overcomes concerns of endogeneity. Specifically, compared with firms whose shareholder proposals fall just short of a majority threshold, firms whose shareholder proposals narrowly pass have similar characteristics but a discretely higher likelihood of implementing improvements in governance. As such, we expect that firms whose shareholder proposals pass the threshold by a small margin exhibit a significantly lower level of earnings management. Employing a regression discontinuity design, we find results that support our expectation based on the propensity to just meet or beat analysts' forecasts by one cent as a proxy for earnings management. In addition, we show that the results are driven by governance changes that increase directors' monitoring. Our results are robust to using discretionary accruals as an alternative measure of earnings management. Collectively, the results suggest that improvements in corporate governance curtail earnings management, and support the underlying premise of regulators that improvements in corporate governance would improve financial reporting.

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Section: Variable Measurement and Research Designmentioning

confidence: 99%

Corporate Governance and Earnings Management: Evidence from Shareholder Proposals*

Fan

Radhakrishnan²,

Zhang³

2020

Contemporary Accting Res

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“…Moreover, voting gives the shareholders a means of conveying their disapproval on the proposed executive remuneration by voting against or abstaining (Goranova & Ryan, 2014). Although previous studies tend to show that shareholders vote with incumbent management (Armstrong, Gow, & Larcker, 2013;Conyon & Sadler, 2010;del Guercio & Hawkins, 1999;Listokin, 2010;Smith, 1996), a recent study by Sauerwald, Van Oosterhout, and Van Essen (2016) argues that shareholders' dissent can be viewed as an effective corporate governance mechanism even though it may not affect the voting outcome directly. According to some studies, shareholders are publicly making their views known with their dissent voting indicating that they are not satisfied with the present management and thereby leading to a negative evaluation of a firm's corporate governance (Hillman et al, 2011;Sauerwald et al, 2016).…”

Section: Introductionmentioning

confidence: 99%

Gender diversity and say‐on‐pay: Evidence from UK remuneration committees

Alkalbani¹,

Cuomo

Mallin

2019

Corporate Governance

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Research question/issue We examine whether the presence of women on the remuneration committee has an influence on say‐on‐pay voting. Research findings/insights Based on panel data from the UK's FTSE 350 firms from 2003 to 2015, we find that firms with women on the remuneration committee reduce shareholders' dissent via say‐on‐pay. However, only firms with a critical mass of more than 30% women on this committee are more likely to have less shareholders' dissent via say‐on‐pay (i.e., the presence of 30% women or less on this committee is not sufficient). Theoretical/academic implications Our results provide empirical evidence that the gender diversity of directors on the remuneration committee plays a significant role in shaping shareholders' dissent via say‐on‐pay in the United Kingdom. Our results also provide empirical support for some of the previous studies that draw on critical mass theory that imply that women are more effective monitors when they make up a critical mass of more than 30%. Practitioner/policy implications Our results could provide regulators with evidence in favor of improving women's representation on UK remuneration committees. In addition, our results could help shareholders and nomination committee members understand the importance of having women on UK remuneration committees, as they are more likely to avoid suboptimal pay and align directors' remuneration packages more closely with shareholders' expectations. Finally, our results could also attract the attention of main stakeholders and the media, especially given their increasing attention both to gender diversity and say‐on‐pay.

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“…The results should be of interest to regulators and investors in the United States, Britain, and other countries in the process of reevaluating or considering the implementation of a pay ratio disclosure requirement or similar rule. The findings also contribute to limited evidence regarding say-on-pay votes, providing insights into the specific conditions where say-on-pay votes may or may not influence director's decisions about CEO compensation (Alissa, 2015;Armstrong et al, 2013;Conyon & Sadler, 2010;Ertimur et al, 2010;Ferri & Maber, 2013;Larcker, McCall, & Ormazabal, 2012;Martin & Thomas, 2005).…”

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confidence: 84%

“…In addition, we examine how shareholders' sayon-pay votes and the pay ratio disclosure can work together and interact to affect corporate directors' beliefs and decisions. We propose that some inconsistent results in the literature regarding the value of say-on-pay votes can be partially explained by directors' concerns about stakeholders' equity perceptions (e.g., Martin & Thomas, 2005;Conyon & Sadler, 2010;Ertimur, Ferry, & Muslu, 2010;Ferri & Maber, 2013;Armstrong, Gow, & Larcker, 2013).…”

mentioning

confidence: 96%

An investigation of corporate directors' responses to CEO pay ratio disclosures and say‐on‐pay votes

Norman

Rose

et al. 2020

Human Resource Management

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The purpose of this study is to shed light on the effects of the CEO pay ratio and say‐on‐pay votes on directors' concerns about CEO pay equity. Investigation of the pay ratio disclosure rule offers opportunities to gain insights into whether equity perceptions associated with mandated pay ratio disclosure have significant effects on remuneration decisions in organizations. We conduct an online experiment with practicing corporate directors to examine the effects of CEO pay ratio disclosures and say‐on‐pay (SOP) votes on director decisions. Results indicate that CEO pay ratio disclosures significantly influence directors' decisions regarding executive compensation, leading directors to be less willing to increase CEO pay when the pay ratio is above the industry average pay ratio. Results also demonstrate that say‐on‐pay votes only influence directors' compensation decisions when the CEO pay ratio is above the industry average. Directors in firms with pay ratios that are above the industry average are less willing to increase CEO pay when they anticipate shareholder votes against a CEO pay increase than when they anticipate positive SOP voting outcomes. Directors in firms with CEO pay ratios that are below the industry average, however, are willing to increase CEO pay regardless of SOP voting outcomes.

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The Efficacy of Shareholder Voting: Evidence from Equity Compensation Plans

Cited by 126 publications

References 52 publications

Corporate Governance and Earnings Management: Evidence from Shareholder Proposals*

Corporate Governance and Earnings Management: Evidence from Shareholder Proposals*

Gender diversity and say‐on‐pay: Evidence from UK remuneration committees

An investigation of corporate directors' responses to CEO pay ratio disclosures and say‐on‐pay votes

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