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Does Mandatory Shareholder Voting Prevent Bad Acquisitions?

Does Mandatory Shareholder Voting Prevent Bad Acquisitions?

Marco Becht 

Université Libre de Bruxelles (ULB) – Solvay Brussels School of Economics and Management; European Corporate Governance Institute (ECGI)

Andrea Polo 

Universitat Pompeu Fabra – Faculty of Economic and Business Sciences; Barcelona Graduate School of Economics (Barcelona GSE); Stanford University – Arthur & Toni Rembe Rock Center for Corporate Governance

Stefano Rossi 

Krannert School of Management; Centre for Economic Policy Research (CEPR)
May 30, 2014
European Corporate Governance Institute (ECGI) – Finance Working Paper No. 422/2014
Rock Center for Corporate Governance at Stanford University Working Paper No. 188

Abstract: 
Corporate acquisitions can be ruinous for acquirer shareholders. Can shareholder voting prevent such corporate disasters? Previous empirical studies based on U.S. data are inconclusive because shareholder approval is discretionary. We study the U.K. setting where bids for relatively large targets are subject to mandatory shareholder approval. Our findings suggest that under the U.K. listing rules shareholder voting can deter bad acquisitions. We find that shareholders gain 8 cents per dollar at the announcement of a Class 1 deal or $13.6 billion over 1992-2010 in aggregate. In the United States acquirers lost $214 billion in matched deals during the same period. In the U.K. relatively smaller Class 2 transactions do not require a vote and shareholders lost $3 billion. Our results are robust to confounding effects and other controls. A Multidimensional Regression Discontinuity Design (MRDD) inspired test supports a causal interpretation of our findings. Class 1 deals just above the assignment threshold perform better than Class 2 deals just below. Our evidence suggests that mandatory voting makes boards more likely to refrain from overpaying or from proposing deals that are not in the interest of shareholders.

 

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About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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