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CFGE-13: Conflicts between Shareholders and Other Stakeholders
When Shareholders Disagree: Trading after Shareholder Meetings
1Universität Mannheim, Germany; 2Rutgers Business School; 3Michigan State University
This paper analyzes how trading after shareholder meetings changes the composition of the shareholder base. Mutual funds in our sample sell, or buy less, if their votes are opposed to the voting outcome, independently of whether funds oppose or support management. Trading volume peaks at the meeting date and remains at elevated levels up to four weeks after shareholder meetings; it is higher even when stock prices do not change. These findings are difficult to reconcile with models in which shareholders trade because of differences in information. We explore recently-published models of trading based on disagreement and differences of opinions, which offer sharp predictions on the relationships between volume, volatility, and the autocorrelations of volume. We find strong support for these models in the data, and little to support models in which voting aggregates information. We conclude that shareholders disagree when they vote at meetings, and their beliefs may diverge even more strongly a fter the meeting. Hence, trading after meetings creates a shareholder base with more homogeneous beliefs. We argue that these findings have important implications for corporate governance.
The Limits of Limited Liability: Evidence from Industrial Pollution
1University of Toronto, Canada; 2Boston College
We study how parent liability for subsidiary environmental cleanup costs affects industrial pollution and production. Our empirical setting exploits a Supreme Court decision that strengthened parent limited liability protection for some subsidiaries. Using a difference-in-differences framework, we find that increased liability protection for parents leads to a 5-9% increase in toxic emissions by subsidiaries. Evidence suggests the increase in pollution is driven by lower investment in abatement technologies rather than reallocation across plants or increased production. Cross-sectional tests suggest a harm-shifting motivation for these effects. Overall, our results highlight moral hazard problems associated with limited liability.
Brick or Treat: Hedge Fund Activism and Real Estate Sale-Leasebacks
IESE Business School, Spain
This paper investigates the effects of hedge fund activists –who strategically target and invest in firms that own large real estate assets– on shareholders’ value. We find that the presence of hedge fund activists in the short list of large shareholders of a firm is associated with a higher probability of real estate sale-leasebacks. Moreover, there are positive abnormal returns around the sale-leaseback announcement. This effect is stronger among the transactions most likely influenced by hedge funds. We also find slight improvements in the ex post operational performance and financial and investment policies. However, we find that these firms enter on leaseback contracts with overpriced rents on average. Overall, our results suggest that although hedge fund activism in real estate sale-leasebacks is beneficial for shareholders in the short run, it can be harmful in the long run.
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