The Value of Being Heard: Board Responsiveness to Shareholder Proposals

While prior research has primarily focused on the short-term market reactions to shareholder proposals and examined their outcomes in isolation, this study adopts a broader perspective by investigating how different levels of proposal responsiveness relate to firm value. We posit that the value effects of shareholder proposals are more pronounced when firms are open to dialogue with shareholders, whether publicly or privately. Using a sample of 9,764 shareholder proposals submitted to S&P 1500 firms between 2005 and 2021, we find that both voted and withdrawn proposals are similarly associated with higher firm value (measured by Tobin's Q) compared to omitted proposals. In the longer term, our results provide modest evidence that the positive effect persists primarily for withdrawn proposals, suggesting that the highest degree of responsiveness yields the greatest value creation. Furthermore, responsiveness appears to be more value-enhancing when proposals are submitted by multiple shareholders or in firms with CEO duality, indicating that both collective shareholder action and CEO power dynamics play a role. These findings imply that regulators, companies and shareholders should recognize that the shareholder proposal process can enhance firm value under certain conditions.

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