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February 12, 2007, at 4:45 p.m. Click here to visit the photo gallery
http://papers.ssrn.com/abstract=928843 |
Almost all company directors are routinely approved in uncontested elections; that is, no outside group contests director nominees via a vote-no campaign or a proxy fight. Because of plurality voting rules, such elections are meaningless, in the sense that the director nominees are almost surely elected. We hand collect over 10,000 individual director vote tallies from these meaningless elections and assess whether they serve as an aggregator of investor perceptions regarding firm management. We document that vote approval is extremely high for almost all nominees in uncontested elections, with the lowest quintile of vote approval still having a mean of 90%. Nonetheless, we provide evidence that uncontested elections serve as meaningful aggregators of investor perceptions by documenting that (1) vote approval is associated with prior-year stock return and prior-year return on assets, and (2) vote approval predicts stock price reactions to subsequent announcements of management turnovers. In addition, we provide evidence that boards are responsive to the sentiment captured in the uncontested vote by documenting that vote approval predicts forced CEO turnover in the twelve months after the annual meeting. Furthermore, we show that other statistics that determine or reflect investor perceptions (i.e., prior stock returns, prior return on assets, and change in institutional ownership) do not subsume the information content in vote approval, which suggests that it captures some unique aspects of investor perceptions. Finally, we document that both the change in institutional ownership, which captures institutions voting with their feet, and the vote approval measure have predictive value in identifying forced turnovers, which suggests that each type of voting captures different investor perceptions. We conclude that while director elections do not directly determine who sits on boards, they do reflect investor perceptions regarding board performance and the board appears to be responsive to those perceptions. Brian Miller, C.P.A, is currently in the final stages of a Ph.D. program at the Pennsylvania State University. His background includes experience in both public accounting and corporate finance. Mr. Miller’s research explores both the implications of disclosure and executive monitoring. His dissertation combines both of these research interests by examining the effects of mandatory disclosure regulation on mutual fund managers’ proxy voting behavior. Other working papers include an investigation of CEO turnover around restatements in the Post-Enron Era (with K. Hennes and A. Leone), as well as, a paper investigating the role of routine director elections in CEO monitoring (with P. Fischer and J. Gramlich). |
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The colloquium is sponsored by the L.L. Bean/Lee Surace Endowed Chair in Accounting. ________________________________________________ USM Professor Jeffrey Gramlich was appointed the first L.L. Bean/Lee Surace Chair in Accounting in the USM School of Business in 2003. His appointment was made possible by a $1 million gift from L.L. Bean, Inc., its board chair, Leon Gorman, his wife Lisa, Jim and Maureen Gorman, and Tom Gorman, who established the chair in memory of L.L. Bean CFO Lee Surace '73, '81, who died in March of 2001. Surace was chair of the USM School of Business' Advisory Council and was a frequent guest lecturer. The USM School of Business is accredited by the prestigious AACSB International. For students seeking the finest education and companies seeking the highest caliber talent, partnership, and educational opportunities, AACSB International accreditation is one of the most important affirmations of sustained quality in the word. For more information about School of Business programs, call 780-4020. |
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