Proxy contests and corporate change: implications for shareholder wealth

Abstract

We study the shareholder wealth effects of 270 proxy contests for board seats in the 1979–1994 period. We find that proxy contests create value, with the bulk of the wealth gains stemming from firms that are acquired. Restricting analysis to firms listed on Compustat imparts a downward bias on estimated wealth effects because such a restriction excludes a sizable fraction of the firms acquired during the proxy contest. For firms that are not acquired, the occurrence of management turnover has a significant, positive effect on shareholder wealth because firms replacing management are more likely to restructure following the contest.