Finance Papers

Document Type

Journal Article

Date of this Version

2011

Publication Source

The Journal of Finance

Volume

66

Issue

5

Start Page

1579

Last Page

1614

DOI

10.1111/j.1540-6261.2011.01682.x

Abstract

Shareholder proposals are a common form of shareholder activism. Voting for shareholder proposals, however, is nonbinding since management has the authority to reject the proposal even if it received majority support from shareholders. We analyze whether nonbinding voting is an effective mechanism for conveying shareholder expectations. We show that, unlike binding voting, nonbinding voting generally fails to convey shareholder views when manager and shareholder interests are not aligned. Surprisingly, the presence of an activist investor who can discipline the manager may enhance the advisory role of nonbinding voting only if conflicts of interest between shareholders and the activist are substantial.

Copyright/Permission Statement

This is the peer reviewed version of the following article, which has been published in final form at http://dx.doi.org/10.1111/j.1540-6261.2011.01682.x. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.

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Date Posted: 27 November 2017

This document has been peer reviewed.