Show simple item record

dc.contributor.authorWood, Chrisen_NZ
dc.identifier.citationWood, C. (2005, February 8). Agency costs and corporate governance: Evidence from proxy contests (Thesis). Retrieved from
dc.description.abstractThis thesis examines the impact of a proxy contest on the firm and the wealth of its shareholders. I find that proxy contests serve their intended purpose as an effective external disciplining mechanism, resulting in changes to the incumbent board and improvement in the firms performance. Pre-contest and contest period abnormal returns are similar across all firms subject to a proxy contest. Over the pre-contest period, target firms experience significantly negative stock price performance. The announcement and full contest periods result in a positive stock price reaction for all firms, suggesting that the market views the initiation of a proxy contest as good news. Agency theory suggests that a proxy contest should reduce the problems involved with a separation between principal and agent. To examine this relation, a subsample containing those firms with high free cash flow and low Tobin's Q is examined, Interesting differences in the stock price performance between firms in which dissidents 'win' seats and 'do not win' seats become apparent in the post-contest period. When dissidents 'win' seats, target firms stock prices experience a statistically significant wealth appreciation. Subsequent tests attribute such wealth gains to reduced agency problems through a reduction in capital expenditure and research and development expenditure. When dissidents 'do not win' seats, no attempt to reduce agency costs is apparent, and as a result, these firms experience a sustained wealth loss over the years surrounding a proxy contest. The steps taken to reduce agency costs in those firms in which dissidents 'win seats' suggests that proxy contests fulfil their intended role -- to discipline the board and to improve firm performance.en_NZ
dc.subjectproxy contesten_NZ
dc.subjectexternal disciplining mechanismen_NZ
dc.subjectfirms performanceen_NZ
dc.subjectstock price performanceen_NZ
dc.subjectdiscipline the boarden_NZ
dc.subject.lcshHF Commerceen_NZ
dc.subject.lcshHF5601 Accountingen_NZ
dc.subject.lcshHG Financeen_NZ
dc.titleAgency costs and corporate governance: Evidence from proxy contestsen_NZ
otago.schoolFinance and Quantitative Analysisen_NZ and Quantitative Analysisen_NZ of Otagoen_NZ Thesesen_NZ
otago.openaccessAbstract Only
dc.identifier.eprints381en_NZ & Quantitative Analysisen_NZ
dc.description.referencesAdam, Tim and Vidhan K. Goyal, 2004, The Investment Opportunity Set and its Proxy Variables: Theory and Evidence, Working Paper, Hong Kong University of Science and Technology. Agrawal, Anup and Jeffery F. Jaffe, 2003, Do Takeover Targets Underperform? Evidence from Operating and Stock Returns, Journal of Financial and Quantitative Analysis 38(4), 721-746. Barber, Brad M and John D. Lyon, 1995, Detecting abnormal operating performance: The empirical power and specification of test statistics, Journal of Financial Economics 41, 359-399 Barber, Brad M., and John D. Lyon, 1996, Detecting long-run abnormal stock returns: The empirical power and specification of test statistics, Journal of Financial Economics 43, 341-372 Benartzi, Shlomo, Roni Michaely and Richard Thaler, 1997, Do changes in dividends signal the future or the past, The Journal of Finance 102(3), 1007-1033. Berger, Philip G., Eli Ofek and David L. Yermack, 1997, Managerial Entrenchment and Capital Structure Decisions, The Journal of Finance 52(4), 1411-1438. Bernard, Victor L., 1987, Cross-Sectional Dependence and Problems in Inference in Market-Based Accounting Research, Journal of Accounting Research 25(1), 1-48. Bhagat, Sanjai, and Richard H Jefferis, 1991, Voting power in the proxy process: The case of antitakeover charter amendments, Journal of Financial Economics 30, 193-225. Borstadt, Lisa F., and Thomas J Zwirlein, 1992, The efficient monitoring role of proxy contests: An empirical analysis of post-contest control changes and firm performance, Financial Management 21(3), 22-34. Bradley, Michael, Anand Desai and E. Han Kim, 1983, The Rationale Behind Interfirm Tender Offers: Information or Synergy?, Journal of Financial Economics 11, 183-206. Bray , Alon, 2000, Inference in Long-Horizon Event Studies: A Bayesian Approach with Application to Initial Public Offerings, The Journal of Finance 55(5), 1979-2016. Bray, Alon and Paul A. Gompers, 1997, Myth or Reality? The Long-Run Underperformance of Initial Public Offerings: Evidence from Venture and Nonventure Capital-Backed Companies, The Journal of Finance 52(5), 1791- 1821. Bray, Alon, Christopher Geczy and Paul A. Gompers, 2000, Is the abnormal return following equity issuances anomalous?, Journal of Financial Economics 56, 209- 249. Brickley, James A., 1986, Interpreting Common Stock Returns around Proxy Statement Disclosures and Annual Shareholder Meetings, Journal of Financial and Quantitative Analysis 21(3), 343-349. Choi, Dosoung, Toehold Acquisitions, Shareholder Wealth, and the Market for Corporate Control, Journal of Financial and Quantitative Analysis 26(3), 39]-407. Chung, Kee H., and Stephen W. Pruitt, 1994, A Simple Approximation of Tobin's q, Financial Management 23(3), 70-74. Collins, Daniel W., and Linda DeAngelo, 1990, Accounting information and corporate governance: Market and analyst reactions to earnings of firms engaged in proxy contests, Journal of Accounting and Economics 13(3), 213-247. Cowan, Arnold R., and Anna M.A. Sergeant, 1996, Trading Study and Event Study Test Specification, Journal of Banking and Finance 20, 1731-1757. Datta, Sudip, Mai Iskandar-Datta and Kartik Raman, 2001, Executive Compensation and Corporate Acquisition Decisions, The Journal of Finance 56 (6), 2299-2336. DeAngelo, Harry, and Linda DeAngelo, 1989, Proxy contests and the governance of publicly held corporations, Journal of Financial Economics 23(1), 29-60. DeAngelo, Linda, 1988, Managerial compensation, information costs, and corporate governance: The use of accounting performance measures in proxy contests. Journal of Accounting and Economics 10(1), 3-36. Denis, David J., and Diane K. Denis, 1995, Performance Changes Following Top Management Dismissals, The Journal of Finance 50(4), 1029-1057. Dodd, P., and J B Warner, 1983, On corporate governance: A study of proxy contests„ Journal of Financial Economics 11, 401-438. Duvall, Richard M., and Douglas V Austin, 1965, Predicting the results of proxy contests, The Journal of Finance 20(3), 464-471. Eberhart, Allan C., William F. Maxwell and Akhtar R. Siddique, 2004, An Examination of Long-Term Abnormal Stock Returns and Operating Performance Following R&D Increases, The Journal of Finance 59(2), 623-650. Elsas, Ralf, Mark J. Flannery and Jon A. Garfinkel, 2004, Major Investments, Firm Financing Decisions and Long-run Performance, working paper. Fama, Eugene F., 1998, Market efficiency, long-term returns, and behavioural finance, Journal of Financial Economics 49, 283-306. Fama, Eugene F., and Kenneth R. French, 1992, The Cross Section of Expected Stock Returns, The Journal of Finance 47(2), 427-465. Fama, Eugene F., and Kenneth R. French, 1995, Size and Book-to-Market Factors in Earnings and Returns, The Journal of Finance 50(1), 131-155. Fama, Eugene F., and Kenneth R. French, 1996, Multifactor Explanations of Asset Pricing Anomalies, The Journal of Finance 51(1), 55-84. Farrelly. Gail E., 1992, Proxy Contests: Are They Close Encounters of the Worst Kind?, Managerial Finance 18(7/8), 19-33. Garvey, Gerald T., and Gordon Hanka, 1999, Capital structure and corporate control: The effect of antitakeover statutes on firm leverage, Journal of Finance 104(2), 519- 546. Gaughan, Patrick A., 2000, Mergers and Acquisitions in the 1990s: A Record Breaking Decade, Journal of Corporate Accounting and Finance 11 (2), 3-5. Gaunt, Clive, 2004, Size and Book to market effects and the Fama French three factor asset pricing model: evidence from the Australian stockmarket, Accounting and Finance 44, 27-44. Gompers, Paul A., and Josh Lerner, 2003, The Really Long-Run Performance of Initial Public Offerings: The Pre-Nasdaq Evidence, The Journal of Finance 58(4), 1355- 1392. Grossman, Sanford J., and Oliver D. Hart, 1982, Corporate Financial Structure and Managerial Incentives, The Economics of Information and Uncertainty (University of Chicago Press, Chicago, Il 1.). Hadlock, Charles J., and Gerald B. Lurner, 1997, Compensation, Turnover, and Top Managemnt Incentives: Historical Evidence, The Journal of Business 70(2), 153- 187. Handcock, G D., 1992, Battles for control: An overview of proxy contests, Managerial Finance 18(7/8). Handcock, G D., 1992, The call option implicit in proxy contested firms, Review of Financial Economics 1(2), 53-62. Handcock, G D., and M Mougoue, 1991, The impact of financial factor on proxy contest outcomes, Journal of Business Finance and Accounting 18(4), 541-552. Healy, Paul M., Krishna G. Palepu and Richard S. Ruback, 1992, Does corporate performance improve after mergers?, Journal of Financial Economics 31, 135- 175. Huang, Wei-Chiao, and Gili Yen, 1996, The Impact of Proxy Contests on Managerial Turnover: A Test of the Job Security Hypothesis, Managerial and Decision Economics 16(6), 551-558. Ikenberry, David, and Josef Lakonishok, 1993, Corporate governance through the proxy contest: Evidence and implications, The Journal of Business 66(3), 405-435. Ikenberry, David, Josef Lakonishok and Theo Vermaelen, 1995, Market Underreaction to Open Market Share Repurchases, Journal of Financial Economics 39, 181-208. Israel, Ronen, 1991, Capital Structure and the Market for Corporate Control: The Defensive Role of Debt Financing, The Journal of Finance 46(4), 1391-1409. Jaffe, Jeffery F., 1974, Special Information and Insider Trading, Journal of Business 47, 410-428. Jarrell, G., 1987, Financial Innovation and Corporate Mergers, In: Browne, L. and R., Rosengren (Eds.), The Merger Boom, Federal Reserve Bank of Boston, Boston, 52-73. Jensen, Michael, 1986, Agency costs of free cash flow, corporate finance and takeovers, American Economic Review 76, 323-329. Jensen, Michael C., and Richard S. Ruback, 1983, The Market for Corporate Control: The Scientific Evidence, Journal of Financial Economics 11, 5-50. Kallapur, Sanjay and Mark A. Trombley, 1999, The Association Between Investment Opportunity Set Proxies and Realized Growth, Journal of Business Finance and Accounting 26(3) & (4), 505-519. Kaplan, Steven N., 1997, The Evolution of U.S. Corporate Governance: We are All Henry Kravis Now, Journal of Private Equity, 7-14. Kose, John, and Eli Ofek, 1995, Asset sales and increase in focus, Journal of Financial Economics 37, 105-126. Kothari, S. P., and Jerold B. Warner, 1997, Measuring long-horizon security price performance, Journal of Financial Economics 43, 301-339. Lang, Larry, Eli. Ofek and Rene M. Stulz, 1996, Leverage, Investment, and Firm Growth, Journal of Financial Economics 40, 3-29. Lehn, Kenneth, and Annette Poulsen, 1989, Free Cash Flow and Stockholder Gains in Going Private Transactions, The Journal of Finance 44(3), 771-787. Liu Y. Angela, et al, 1983, A Re-Examination of the Proxy Hypothesis, The Journal of Financial Research 16(3), 261-268. Loughran, Tim, and Jay R. Ritter, 1995, The New Issues Puzzle, The Journal of Finance 50(1), 23-51. Loughran, Tim, and Jay R. Ritter, 2000, Uniformly Least Powerful Tests of Market Efficiency, Journal of Financial Economics 55, 361-389. Loughran, Tim, and Anand Vijh, 1997, Do Long-Term Shareholders Benefit From Corporate Acquisitions, The Journal of Finance 52(5), 1765-1790. Lyon, John D., Brad M. Barber and Chih-Ling Tsai, 1999, Improved Methods for Tests of Long-Run Abnormal Stock Returns, The Journal of Finance 54(1), 165-201. MacKinlay, A. Craig., 1997, Event Studies in Economics and Finance, Journal of Economic Literature 35, 13-39. McCarthy, Joseph, Mohammad Najand and Bruce Seifert, 1990, Empirical Tests of the Proxy Hyothesis, The Financial Review 25(2), 251-263. Maksimovic, Vokislav, and Sheridan Titman, 1991, Financial Policy and Reputation for Product Quality, The Review of Financial Studies 4 (1), 175-200. Mandelker, Gershon, 1974, Risk and Return: The Case of Merging Firms, Journal of Financial Economics 1, 303-336. Manne, Henry G., 1965, Mergers and the Market for Corporate Control, The Journal of Political Economy 73(2), 110-120. Megginson, William L., Angela Morgan and Lance Nail, 2003, The determinants of positive long-term performance in strategic mergers: Corporate focus and cash, Journal of Banking and Finance (article in press). Mensah, Sam, 1998, The impact of asymmetric information on proxy outcomes: An empirical test, Financial Review 33(3,Aug), 69-84. Michaely, Roni, Richard H. Thaler and Kent L. Womack, 1995, Price Reaction to Dividend Initiations and Omissions: Overreaction or Drift?, The Journal of Finance 50(2), 573-608. Miller, Alan, 1994, Corporate Transformation: The New Role of Proxy Contests, Review of Business 15(3), 15-19. Mitchell, Mark L., and Erik Stafford, 2000, Managerial Decisions and long-Term Stock Price Performance, The Journal of Business 73(3), 287-329. Morck, Randell, Andrei Shleifer and Robert W. Vishny, 1988, Management ownership and market valuation, Journal of Financial Economics, 293-315. Mulherin, J. Harold., and Annette B. Poulsen, 1997, Proxy contests and corporate change: Implications for shareholder wealth, Journal of Financial Economics 47(3), 279-313. Murphy, Kevin J., Summer 1996, Reporting Choice and the 1992 Proxy Disclosure Rules, Journal of Accounting, Auditing and Finance 11(3), 497-517 Myers, Stewart C., 1977, Determinants of Corporate Borrowing, Journal of Financial Economics 5, 147-175. Myers, Stewart C., and Nicholas S. Majluf, 1984, Corporate Financing and Investment Decisions When Firms Have Information That Investors Do Not Have, Journal of Financial Economics 13, 187-221. Pound, John, 1988, Proxy contests and the efficiency of shareholder oversight, Journal of Financial Economics 20(1/2), 237-266. Pound, John, 1991, Proxy voting and the SEC: Investor protection versus market efficiency, Journal of Financial Economics 29(2), 241-286. Pound, John, 1992, Beyond Takeovers: Politics Comes to Corporate Control, Harvard Business Review 70, 83-93. Rau, P. Raghavendra, and Theo Vermaelen, 1998, Glamour, value and the postacquisition performance of acquiring firms, Journal of Financial Economics 49, 223-253, Ritter, Jay R., 1991, The Long-Run Performance of Initial Public Offerings, The Journal of Finance 46(1), 3-27. Ross, Stephen, 1977, The determination of financial structure: The incentive-signalling approach, Bell Journal of Economics 8, 23-40. Safieddine, Assem, and Sheridan Titman, 1999, Leverage and Corporate Performance: Evidence from Unsuccessful Takeovers, The Journal of Finance 54(2), 547-580. Spiess, D. Katherine, and John Affleck-Graves, 1999, The long-run performance of stock returns following debt offerings, Journal of Financial Economics 54, 45-73. Smith, C. W., and R. L. Watts, 1992, The Investment Opportunity Set and Accounting Procedure Choice: Preliminary Evidence, Journal of Accounting and Economics 32(3), 263-292. Sridharan, Uma H., and Marc R Reinganum, Determinants of the choice of the hostile takeover mechanism: An empirical analysis of tender offers and proxy contests, Financial Management 24(1), 57-67. Stulz, Rene M., 1990, Managerial Discretion and Optimal Financing Policies, Journal of Financial Economics 26, 3-27. Vijh, Anand., 1999, Long-term returns from equity carveouts, Journal of Financial Economics 51, 273-308.en_NZ
 Find in your library

Files in this item


There are no files associated with this item.

This item is not available in full-text via OUR Archive.

If you would like to read this item, please apply for an inter-library loan from the University of Otago via your local library.

If you are the author of this item, please contact us if you wish to discuss making the full text publicly available.

This item appears in the following Collection(s)

Show simple item record