Corporate Governance Through the Proxy Contest: Evidence and Implications

The current literature concerning proxy contests provides little evidence that shareholders suffer materially from sub par performance prior to a contest. Furthermore, no study has thoroughly examined the long-term performance of targeted firms subsequent to a proxy contest. Using a sample of ninety-seven election contests during the period 1968-87, the authors find negative abnormal returns and deteriorating operating performance prior to the announcement of a contest. Following the contest, negative abnormal returns are observed. These negative returns are driven by cases in which dissident shareholders successfully acquire board seats. The results for accounting-based operating performance measures confirm these findings.