Of What Value are Shareholder Proposals Sponsored by Public Pension Funds?

Abstract

This study addresses the empirical question, Of what value are shareholder proposals sponsored by public pension funds? and finds that the primary function of a proposal is to act as a signaling mechanism in alerting the market that management is unwilling or unable to negotiate a settlement with the public fund in order to prevent the submission of the proposal. The sample selection process allows the study to isolate a clean, uncontaminated sample of firms targeted by public funds. Firms receiving proposals for the first time experience a transitory decrease in shareholder wealth, while firms that are targeted repeatedly exhibit negative wealth effects over much wider event windows. These results are robust to both parametric and non-parametric event study methodologies. Long run changes in the firms' operating performance and stock price returns are consistent with these results. Repeat target firms exhibit long run declining performance, while the one-time target firms exhibit positive (but insignificant) differences in performance. Comparison of corporate governance characteristics provides some insight into these differences.