The Differential Effect of Regulatory Signals on Shareholder Dissent: The Case of Shareholder Voting in Director Elections

ABSTRACT Research Question/Issue In the Japanese context of shareholder voting in director elections, this study examines how regulatory signals differently influence shareholder dissent depending on their resource dependence relationship with regulatory bodies. Research Findings/Insights We find that the effect of a regulatory change in the disclosure of voting records on shareholder dissent is strengthened as shareholdings by domestic institutional investors increase, while it is mitigated as shareholdings by foreign institutional investors increase. Moreover, we find that this effect is pronounced under conditions where directors seemingly fail to fulfill or to qualify for their role. Theoretical/Academic Implications This study develops a resource dependence perspective of shareholder dissent and argues that shareholder dissent can be shaped by regulatory signals from regulatory bodies who provide them with legitimacy. This study enriches the existing insights on corporate governance role of institutional investors by focusing on their resource dependence on regulatory bodies. Practitioner/Policy Implications This study sheds light on the dynamic nature of shareholder behavior and suggests that shareholder preferences are not only heterogeneous but also mutable over time in response to regulatory signals. This implies that managers need to pay attention not only to current shareholder preferences but also to future anticipated shareholder preferences to successfully manage their relationships with shareholders.