Xiao Li is an assistant professor at Central University of Finance and Economics; Jeffrey Ng is a professor at The Hong Kong Polytechnic University; and Hong Wu is an assistant professor at The Hong Kong Polytechnic University. This post is based on their recent paper.
Corporate voting on shareholder proposals, an exercise in corporate democracy, is an important mechanism through which shareholders try to influence how a firm is run (e.g. McCahery, Sautner, & Starks, 2016). Increasing evidence points to shareholder proposals leading to changes in compensation policy, firm strategy, corporate governance, and corporate social responsibility (e.g. Ertimur, Ferri, & Muslu, 2010; Flammer, 2015). Shareholder proposals, which are often based on actual or perceived underperformance relative to peer firms, can generate significant tension between shareholders and the firm’s board of directors and management. Soltes, Srinivasan, and Vijayaraghavan (2016) find that managers sought to exclude a large proportion of shareholder proposals from being voted on and provided evidence that managers often sought to exclude legitimate shareholder interests from such votes. In recommending against a shareholder proposal calling for the independence of the board chairman, the board of Ashford Hospitality Trust, Inc. stated, “There is no established consensus that having an independent chairman or separating the roles of the chief executive officer and chairman enhances returns for stockholders. … In fact, in the case of our company, we have materially and consistently outperformed our peer average on the basis of total stockholder returns and earnings before interest, taxes, depreciation, and amortization (EBITDA) margins over the past three (3) years, while having a non-independent chairman.” [1] If accounting numbers are used in peer comparisons, the comparability of peer information becomes an important issue (De Franco, Kothari, & Verdi, 2011). In this paper, we seek to examine the role of comparable accounting information about peer firms in empowering shareholders to vote on shareholder proposals.
