How Does the Majority Voting Rule of Director Election Influence Firm Value?

Abstract

Taking the agency theory perspective, we theoretically analyze and empirically explore whether the majority voting rule of director election significantly influences firm value. Investigating S&P 1,500 firms between 2007 and 2017, we predict and confirm that the majority voting rule positively impacts firm value and stronger board independence strengthens the positively effect of the majority voting rule on firm value. Meanwhile, the temporal effect of the majority voting rule on firm value resembles an inverted U-shape relationship. Contrary to our prediction, we find that institutional shareholder ownership weakens the positively effect of the majority voting rule on firm value. We contribute new evidence that helps clarify the empirical ambiguity among extant research of the impacts of the majority voting rule. Further, our results shed light on both the benefits and potential drawbacks of empowering shareholders to strongly influence board elections.