Does Mandatory Shareholder Voting Prevent Bad Acquisitions?
June 20, 2014 Leave a comment
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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