The threat of voiced shareholder disapproval and the value of voting

We study how granting shareholders an advisory compensation vote affects the subsequent demand for shareholder voting rights. We find that the voting premium decreases when shareholders are given the right to disapprove firm compensation plans, consistent with shareholders preemptively negotiating concessions, which results in a diminished need to use their votes. Potential concessions extend beyond compensation; firms that experience a decrease in voting premiums also experience changes to investment and dividend policy, as well as the number of independent directors. The same firms experience positive abnormal stock returns over the following year.