Do Shareholders Want Less Governance?

Abstract

Motivated by regulatory and institutional changes in governance mechanisms, I re-examine the value of antitakeover provisions by combining regression discontinuity (RD) techniques with a novel instrumental variable. The instrument makes use of a phenomenon known as overvoting by which securities lending practices generate extra illegitimate proxy votes. Because passing an antitakeover provision requires armative votes from a majority of outstanding shares, as opposed to a majority of shares voted, these additional over-votes bias outcomes in favor of passage. Baseline RD estimates indicate that adopting antitakeover provisions increases shareholder value by approximately 5%. However, RD estimates may be subject to bias if parties can manipulate the outcome of close votes. Incorporating the over-voting instrument addresses this concern and reduces estimates to approximately 3%.