Abstract: Why do institutional investors vote the way they vote? Using a novel dataset on institutional investors’ voting rationales, we provide direct evidence on the motivation for institutions’ votes in director elections. The main reasons given for opposition are lack of independence and board diversity. These rationales differ significantly from proxy advisors' rationales and likely reflect institutional investors' true motivation behind the votes. Concerns raised in rationales reflect firms’ governance weaknesses: companies with low board gender diversity receive more rationales on diversity, with similar results for independence, tenure, busyness, and CEO duality. Companies listen and change board composition in the direction stated in voting rationales. The findings indicate that many institutional investors make voting decisions based on merit, independent of proxy advisors. Results suggest that voting rationales provide an effective, low-cost tool for investors to communicate with portfolio companies, allowing companies to address investors' concerns.
Discussant: Peter Iliev, Pennsylvania State University
Abstract: This paper studies how imposing personal liability on directors and executives can mitigate corporate environmental externalities. I use a landmark court case that increased perceptions of out-of-pocket liability risk related to corporate releases of toxic chemicals. This change varied across Canadian provinces based on their legal systems, which I exploit in a difference-in-differences analysis. I find that imposing personal liability leads to a 23% reduction in toxic chemical releases. Treated small firms scale down operations while large firms invest in clean technology. This environmental benefit is accompanied by a 2.6% decrease in abnormal returns following the shock, as well as an increase in director turnover, particularly among the wealthiest directors and environmental experts who are the most exposed to liability risk. These findings contribute to the debate on the optimal level of personal liability to regulate corporate externalities.
Discussant: Aymeric Bellon, University of North Carolina-Chapel Hill
Markus Parlasca, Vienna University of Economics and Business
Paul Voss, HEC Paris
Abstract: This paper studies how public information, such as proxy advice, affects shareholder voting and, thus, corporate decision-making. Although public information improves the voting decisions of uninformed shareholders, it also induces privately informed shareholders to sell their shares rather than to vote. As a result, public information impairs information aggregation by voting but improves information aggregation by trading. We show that, overall, public information can undermine corporate decision-making. Furthermore, the effect of more precise public information on corporate decision-making is non-monotonic. Our results give rise to new empirical predictions and have implications for regulation.
Alejandro Herrera Caicedo, University of Wisconsin-Madison
Jessica Jeffers, HEC Paris
Elena Prager, University of Rochester
Abstract: This paper examines whether common leadership, defined as two firms sharing executives or board directors, contributes to collusion. Using an explicit measure of labor market collusion from unsealed court evidence, we find that the probability of collusion between two firms increases by 12 percentage points after the onset of common leadership, compared to a baseline rate of 1.2 percent among firm pairs without common leaders. These results are not driven by closeness of product or labor market competition. Our findings are consistent with the increasing attention toward common leadership under Clayton Act Section 8.
Discussant: Carola Schenone, University of Virginia
