Shareholder Participation Research Articles

Small Shareholder Participation in European AGMs

This study investigates an important but under-researched topic in Europe, the small shareholder turnout decision. We assess which factors contribute to (small) shareholder participation using a hand-collected panel dataset with information about turnout rates, voting behaviour, and ownership structures of companies that are listed in seven European Member States. We document how ownership concentration positively affects total shareholder turnout, but has a negative effect on small shareholder turnout. Voting power also affects small turnout rates: the greater small shareholder voting power, the greater their eagerness to vote. In addition, total and small shareholder turnout is higher the more important the meeting agenda. And, small shareholders tend to free-ride on large institutional shareholders and corporate insiders, but the magnitude of the free-rider effect is larger for the latter category of blockholders. Our results provide some important insights for the debate on shareholder rights and the role of the AGM in corporate governance. The results show that, despite the criticism, the AGM still plays a role in small shareholder monitoring. Some topics seem to clearly motivate small shareholders to attend, while others are less relevant. Policy makers can stimulate shareholder monitoring by focusing on the factors that determined in this study.

Shareholder Proposals on the Auditor–Client Relationship: The Case of Nonaudit Service Purchases

This article provides empirical evidence on shareholder proposals seeking to restrict nonaudit service (NAS) purchases by public companies from their independent auditors. Our analysis is based on 104 instances of shareholder proposals seeking to restrict NAS provided by independent auditors, received by 94 firms during a unique period from 2001 to 2004 (when the Securities and Exchange Commission [SEC] allowed such proposals to proceed to shareholder votes), and a control sample that did not receive such proposals. We find that firms targeted by shareholders had higher nonaudit fee ratios. We also find that firms receiving such shareholder proposals are likely to have steeper subsequent declines in the nonaudit fee ratio than firms not receiving such proposals. Finally, considering only the subset of firms that have a shareholder vote on proposals seeking to restrict NAS purchases, the subsequent reduction in the nonaudit fee ratio is positively related to the magnitude of the proportion of votes in favor of the shareholder proposal. Our findings suggest that permitting shareholder participation in issues related to the auditor–client relationship can lead to significant changes in the nature of the auditor’s relationship with the client, and they call into question recent SEC actions permitting companies to restrict shareholder participation in issues related to auditor selection.

Free-Riders and Underdogs: Participation in Corporate Voting

Voting outcomes can differ from underlying preferences due to selection into voting. One source of such selection is lower participation of shareholders with popular preferences (free-rider effect) relative to that of those with unpopular preferences (underdog effect). We illustrate these strategic effects in a rational choice model in which the voting participation decision depends on the probability of being pivotal and the costs and benefits of voting. Based on the model, we structurally estimate unobservable shareholder preferences in US data. We show that strategic selection into voting is relevant: 13% of voting outcomes in shareholder governance proposals represent the minority.

The Trajectory of American Corporate Governance: Shareholder Empowerment and Private Ordering Combat

Why are shareholder empowerment and activism such controversial issues in the United States today? Other common law jurisdictions, including the United Kingdom, have welcomed and encouraged greater shareholder participation and engagement in corporate governance. In the United States, however, this prospect has been met with widespread apprehension and resistance. There is a paradox here. The United States is generally regarded as the birthplace of shareholder activism, yet U.S. shareholders have traditionally possessed far fewer corporate governance rights than shareholders in other common law jurisdictions, where such rights are often guaranteed by mandatory laws. U.S. corporate law has been much more focused on protecting shareholders than enabling shareholders to participate in corporate governance, and thereby protect themselves. This article discusses the trajectory of corporate governance in the United States, with particular attention to the regulatory distinction between shareholder protection versus participation in corporate governance. In doing so, it highlights evolving shareholder governance rights in the United States against the backdrop of the shareholder empowerment and proxy access debates. The article also investigates recent U.S. developments, including the growing use by institutional investors of private ordering as a “self-help” mechanism to gain stronger participatory rights. These developments, including controversial bylaw amendments, have readjusted the balance of power between shareholders and boards of directors in U.S. public corporations. They have also created a dynamic and shifting corporate governance terrain, where boards and shareholders are increasingly engaged in “private ordering combat.” The article also explores the intriguing underlying question of why shareholder empowerment and participation in corporate governance are such fraught issues in the United States, compared to some other common law jurisdictions, such as the United Kingdom. To explain this puzzle, the article looks to legal history and to the fundamentally different organizational of US and UK corporate law. Organizational matter, and divergence in those origins, combined with the phenomenon of origins backlash, can lead to fundamental differences in the structure of legal regimes. The article argues that this insight is critical to understanding why shareholder empowerment and participation in corporate governance are, and are likely to remain, such contentious issues in the United States compared to other common law jurisdictions.

Shareholder primacy, controlling shareholders and Malaysia’s Companies Act 2016

ABSTRACTThe predominant corporate governance model within the Commonwealth mimics that of the UK where powers of management are reserved for the board. This director primacy model, however, is being challenged by proposals to expand shareholders’ decision-making rights including giving shareholders the power to initiate their own proposals and to instruct the board. Amidst this debate, Malaysia has passed its new Companies Act 2016 which contains, amongst others, s 195 which empowers shareholders to make binding recommendations to the board relating to the management of the company. Empowering shareholders by giving them such powers have been the subject of intense criticisms. This article examines s 195 and the shareholders participation eco-system to provide an idea of the law in practice as well as to address the concerns relating to giving shareholders such expansive power. This article advances the view that the decision-making framework under the Companies Act 2016 and the actual functioning of the power to instruct show that these criticisms may be unfounded and the potential setbacks of shareholder empowerment can be minimised through judicious use of legal rules.

The Participation of the Small Shareholder in the Annual General Meeting: A Reflection of Good Corporate Governance? **

This paper analyses the level of small shareholder (SS) participation in the Annual General Meeting (AGM), assessing how this reflects upon the corporate governance of listed entities. It focuses on SS attendance, voting and proposals (excluding those of institutional and majority shareholders), improving SS participation and the significance of such AGM proceedings to listed company corporate governance. Empirical mixed methodology research is carried out in a Maltese listed company (LC) setting by means of semi-structured interviews with seventeen LC secretaries, five stockbrokers, an online questionnaire responded by fifty-four shareholders in different LCs, as well as the analysis of company notices and documentation relating to the AGM. Results indicate that SS participation is weak. Attendance is poor, and is often spurred both by legitimate factors such as information on current financial performance and by questionable ones such as refreshments served and venue. Shareholders seem uncomfortable in asking management formal questions and even in voting by show of hands, and therefore opt for informal interaction with management and for voting by poll, the latter often rendering attendance fruitless and even unnecessary by permitting proxies. As for proposals, they could induce management’s later action despite seldom, if ever, being approved, but their submission is rare and mostly frivolous, commonly hampered by a lack of financial knowledge. The study concludes that the current level of SS participation does not render the AGM a tool reflecting good corporate governance, as it does not keep in balance the interests of this shareholder with those of other stakeholders. For the sake of better direction and control, and, in particular, for more transparency and accountability, the AGM has to be less stage-managed, as well as more interactive and engaging towards such shareholder. This calls for increased management commitment, particularly towards more investoreducation and guidance.

Absent neighbours and passive shareholders – The issue of residency and involvement in the management of a forest common

The Swedish forest commons can be regarded as self-organized community groups which jointly manage a forest resource. However, previous studies point out the diminishing role and engagement of shareholders in terms of governance, thereby challenging some vital design principles of robust common-pool resource institutions. We assume that major reasons for this is associated with socio-demographic changes meaning a large proportion of shareholders do not live in the area. Therefore this study compares resident and non-resident shareholder participation in and perceptions about their common, as well as assesses their engagement in the management of one major forest common in Northern Sweden. To this end a questionnaire survey was conducted together with regular consultations with the common's board and staff to discuss shareholder participation and other major issues concerning the common.The study shows that the common has a low shareholder engagement and a high proportion of non-resident shareholders. Even though a large proportion of resident shareholders acknowledged benefits from the common, they were also less satisfied with the cooperation among shareholders and less optimistic about the possibilities to influence management decisions. In contrast, the majority of non-resident shareholders saw ‘no disadvantages’ of the common. Although most of the shareholders regularly visit the common, hardly any participate in the general meetings. While residency outside the municipality certainly seems to have an impact on the engagement of non-resident shareholders, our study suggests that simple strategies from the board including accessible information and better timing and/or location of meetings might even increase the participation among all shareholders.

Institutional shareholder activism in Nigeria: An accountability perspective

Research has identified institutional shareholders and shareholders’ associations as separate groups that are able to interact and promote accountability through shareholder activism. This study employs a qualitative methodology to critically evaluate how institutional shareholders perceive the participation of Nigerian shareholders’ associations in shareholder activism. We examine three features of accountability that are vital in shareholder activism; dialectical activity, independence and agenda. We contribute to the accountability literature by showing how these three features shape institutional shareholders’ perception of shareholders’ associations as shareholder activists. Our findings show distinct differences between the views of representatives from active and passive institutional shareholders.

Shareholder nonparticipation in valuable rights offerings: New findings for an old puzzle

Shareholder participation in valuable domestic rights offerings averages only 64%, which is considerably lower than previously asserted. This causes wealth transfers from nonparticipating to participating shareholders that average 7% of the offering. Wealth transfers are larger in nontransferable and bigger offerings. The stock market reacts more negatively to larger wealth transfers. Offerings with lower shareholder participation also fall short in raising publicly stated capital goals. Rights offerings are far more common in countries with institutional practices that limit nonparticipating shareholders’ wealth losses. These findings suggest that agency conflicts influence the use of rights offers.

Related Party Transactions Under the Companies Act, 2013

The law governing RPTs is the Companies Act, 2013. The Companies Act, 2013 was unprecedented, in regard to the power granted to minority shareholders to reject RPT’s as the Ministry of Corporate affairs (hereinafter MCA) had come up with stringent rules which provided for several rounds of approval and disclosures of a wide range of transactions that companies entered into with relatives of promoters, entities controlled by promoters and entities controlled by relatives of promoters. Section 188 of the Act in its original form had mandated companies with paid-up capital greater than one crore rupees to seek approval of its board of directors by a special majority, irrespective of the share capital of the company or the value of a RPT. Section 188 of the Act to ensure independence in the manner of voting of RPTs had further barred all related parties from voting on RPTs. SEBI had also furthered the process of enhancing shareholder participation by mandating listed companies to provide ‘E-voting’ facilities to its shareholders in respect of business matters transacted by listed companies through the postal ballot procedure. The provision of E-voting facilities is likely to promote greater shareholder participation in matters concerning corporate governance. However, representations from the companies advocated that such stringent regulations hampered the efficiency in regard to business operations, the MCA through two circulars substantially diluted the provisions of the Companies Act, 2013 .The First Circular narrowed the definition of a ‘Related party’ for the purposed of voting on resolutions, where the circular clarified that a shareholder under the second proviso to section 188(1) would be considered a related party only with reference to a contract or arrangement for which the special resolution was being passed. The provisions of the aforementioned circular enabled a large set of shareholders who are likely to benefit but are not ‘related’ under the Companies to vote on RPT resolutions.The second circular from the MCA removed the classification of companies on the basis of Paid-up Capital, where companies are now required to seek shareholder approval for only those RPT’s which cross the transaction threshold of hundred crore rupees. The Circular also exempted companies from seeking shareholder approvals for RPT’s with wholly subsidiaries which increased the scope for potential abuse at the cost of minority investors. Additionally, the Companies Amendment act, 2015 passed by the Indian parliament envisages that RPT’S would only need shareholder approval through an ‘ordinary resolution’ and not a ‘Special resolution’ of disinterested shareholders (Majority of minority) further reducing the power of minority shareholders to block abusive RPT’s owing to a lower threshold of shareholder approval. Furthermore, amendments to Section 188 of the Companies Act, 2014 in regard to RPT’s have not been aligned with clause 49 of the listing agreement with SEBI which could create inconsistencies in the application of the legal principles to governs RPTs. The recent decision of the Bombay High Court which questioned the validity of ‘E- Voting’ has raised several legal uncertainties in regard to the procedure for approval of RPT’s.

Institutional Shareholder Activism in Nigeria: An Accountability Perspective

Research has identified institutional shareholders and shareholders’ associations as separate groups that are able to interact and promote accountability through shareholder activism. This study employs a qualitative methodology to critically evaluate how institutional shareholders perceive the participation of Nigerian shareholders’ associations in shareholder activism. We examine three features of accountability that are vital in shareholder activism; dialectical activity, independence and agenda. We contribute to the accountability literature by showing how these three features shape institutional shareholders’ perception of shareholders’ associations as shareholder activists. Our findings show distinct differences between the views of representatives from active and passive institutional shareholders.

Shareholders activism in corporate governance

Corporate law in India too has undergone changes in relevant rules and regulations due to corporate frauds and failures. Corporate Governance structure under the companies Act, 2013, is standing on six pillars, which included Independent directors, Audit committee, Auditors, Internal Audit, Whistle Blower policy and secretarial Audit Report. Active participation of all stakeholders in corporate governance frame work, continuous regulatory changes and entry of domestic and overseas institutional investors have all given birth to shareholders activism in India. The present article focuses on shareholder activism in corporate governance in India Inc. SEBI LODR regulations have called for greater degree of disclosures by companies to take-well informed decisions for the shareholders in general and minority shareholders in particular. The key drivers in shareholders activism in India include Regulatory reforms, related party transactions, Annual reports and Business Responsibility Reporting, E-voting and postal ballot, responsibilities of auditors in reporting fraud, appointment of director by small shareholders, Equity research analysis and proxy advisors. The rising scenario of shareholder activism and corporate governance standards, it is needless to mention that active participation of shareholders will bring more alertness on corporate governance arena in India Inc.

Can Online Annual General Meetings Increase Shareholderss Participation in Corporate Governance? Evidence from China

We find that annual shareholder meetings conducted online can greatly increase the participation of shareholders, especially retail shareholders. This finding is more evident when the cost of physically attending such a meeting is higher and when the firm’s ownership is more dispersed. We further document significant positive stock returns when firms initiate online annual meetings. We also find that retail shareholders indeed actively voice their concerns by voting against the proposals that potentially hurt their interests. Overall, we provide evidence that online shareholder meetings provide shareholders a cost-effective way to participate in governance issues.

Impact of Ownership Structure and Bank Performance – An Empirical Test in Vietnamese Banks

By using the data collected from the whole 44 banks in the banking system in Vietnam from 2010-2012, the authors try to investigate the impacts of ownership structure on bank performance in Vietnamese banking system. Research results show that capital concentration and private ownership have positive impact on bank profitablity, the nonperforming loan ratio has negative relation with banks’ profitability. Besides, the research results are also consistent with the previous researches (Nguyen, Tran & Pham, 2014) on the positive correlation of corporate governance and bank performance in Vietnam. The findings in this paper are also relevant with the previous researches in Kenya, China, Malaysia (Wen, 2010, Rokwaro, 2013). From these findings, some policy implications are also suggested as follow: (i) encourage the large shareholders participation the Board of Director to reduce the interest conflict in banks, (ii) enhance private ownership to increase bank profitability, (iii) improve the corporate governance of banks under international standards, and (iv) push-up the solving of non-performing loans in the bank restructuring in Vietnam.

External Corporate Governance and Misreporting

AbstractThis study investigates how external corporate governance provisions, specifically statutory and corporate charter provisions that limit direct shareholder participation in the governance process, affect the likelihood of an accounting restatement. The analysis indicates that strong external governance (fewer restrictions on shareholder participation) is associated with a relatively low incidence of accounting restatements. The effect of external governance is incremental to that of internal governance, which is considered as provisions that foster effective board oversight of management. Such evidence supports the premise that shareholder participation improves financial reporting quality.

Infant firms in emerging market: An analysis of stand-alones vs. subsidiaries

Newly established manufacturing firms in Korea without any corporate shareholder participation — stand-alones — exhibit significantly higher profitability and smaller asset size compared to those set up by corporate shareholders — subsidiaries. This pattern holds even for stand-alones and subsidiaries set up by the same controlling shareholder. Such differences in profitability do not seem to be driven by inherent differences in business risk nor reflected in post-establishment survival rates. Moreover, infant firms' overall profitability depends more on internal transactions with affiliated firms than external transactions.

Effects of Family Ownership, Debt and Board Composition on Mexican Firms Performance

This study examines the relationship between ownership structure and performance of public firms in Mexico, considering debt and the structure of the board of directors as contextual and institutional factors. This research seeks to explain the mixed results about the relationship of ownership and performance presented by other relevant studies in family and non-family businesses, mainly in emerging countries. The results confirm the positive association between family ownership concentration and performance, calculated by Tobin’s Q, showing how the participation of inside shareholders on the board and a low debt level contribute to higher performance. However, the association of these variables with performance shows a contrasting effect in the case of family as compared to non-family businesses. The particular corporate legal context in Mexico could be highlighted as one of the main reasons for these results.

Determinants of a firm's decision to utilize a dividend reinvestment plan and shareholder participation rates: Australian evidence

This study examines the determinants of a firm's decision to utilize a dividend reinvestment plan (“DRP”) and shareholder participation rates under the Australian dividend imputation regime over the period 1995–2009. A DRP enables managers to increase the dividend payout and distribute greater franking credits to Australian tax-resident shareholders, while retaining cash in the firm for new investment opportunities.Overall, we find evidence that firms who utilize a DRP have a higher dividend payout ratio, are larger in size and lower growth prospects compared to non-DRP firms. Firms were more likely to utilize a DRP subsequent to reforms to Australia's tax system in July 2000, which enabled Australian tax-resident investors to redeem for cash the value of any surplus franking credits distributed to shareholders. For financial firms we find that firms who utilize a DRP pay dividends with greater levels of franking credits attached.Shareholder participation rates in non-underwritten DRPs are positively related to the discount offered in respect of the issue of new shares. Contrary to our expectations, we find no evidence that dividend taxation explains participation rates in a DRP.

Accounting for rituals and ritualization: The case of shareholders’ associations

This paper uses ritual theory to examine the participation of shareholders’ associations in rituals and ritualization within social spaces. We focus on how the interconnectedness between private rituals (private investor meetings) and public rituals (AGMs and courts) produce psychological and functional benefits for shareholders’ associations. We explore the strategic acts used by shareholders’ associations in ritualization. Our study reveals that the participation of shareholders’ associations in each ritual plays a significant role in reducing conflict and maintaining harmony. Regarding ritualization, our study shows that some shareholders’ associations use a form of gamesmanship to gain strategic advantage in audit committee nominations at AGMs.

Private placements, cash dividends and interests transfer: Empirical evidence from Chinese listed firms

In this paper, the relationship between private placements of common stocks and cash dividends for Chinese listed firms is investigated. It finds that Chinese listed firms pay more cash dividends after private placements than do those that are not involved in placements. Firms with large shareholders participating in private placements pay more cash dividends than those without large shareholder participation. These results indicate that the firms controlled by large shareholders have a high propensity for interests transfer in their cash dividend policies.