Appel, Ian

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  • Publication
    Essays in Corporate Governance
    (2015-01-01) Appel, Ian
    In the first chapter ("Governance by Litigation") I study the role of shareholder litigation rights in corporate governance. To empirically identify the effects of shareholder lawsuits, I use the staggered adoption of universal demand (UD) laws in 23 states between 1989 and 2005. These laws impose a significant obstacle to lawsuits against directors and officers for breach of fiduciary duty. UD laws are associated with increased use of governance provisions (e.g., classified boards) that entrench managers or otherwise limit shareholder voice. I also document fewer institutional blockholders, changes to financial policies and CEO compensation, and impaired performance for firms subject to UD. Overall, my findings cast doubt on the notion that shareholder lawsuits primarily benefit attorneys rather than corporations or their shareholders In the second chapter ("Passive Investors, Not Passive Owners" with Todd Gormley and Donald Keim) we examine whether and by which mechanisms passive investors influence firms' governance structures. Our empirical strategy exploits variation in passive institutional ownership that results from stocks being assigned to either the Russell 1000 or 2000 index. Our findings suggest that passive investors play a key role in influencing firms' governance choices; ownership by passive institutions is associated with more independent directors, the removal of poison pills and restrictions on shareholders" ability to call special meetings, and fewer dual class share structures. Passive investors appear to exert influence through their large voting blocs-passive ownership is associated with less support for management proposals and more support for shareholder-initiated governance proposals. Consistent with the observed differences in governance having a positive influence on firm value, we find that passive ownership is also associated with improvements in firms' longer-term performance.