The Role of Negotiations in Corporate Governance: Evidence From Withdrawn Shareholder-Initiated Proposals

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Abstract
We examine shareholder proposals that are withdrawn by the sponsor during the period 1989 to 1995 to identify factors that affect the relative ability of shareholders and managers to negotiate. We determine factors that affect withdrawal probability and investigate the effect of relaxations in the regulatory environment brought about by the 1992 SEC Proxy reforms. We find that proposals sponsored by institutional shareholders and coordinated groups are more likely to be withdrawn indicating that larger entities have greater ability to negotiate. Likelihood of withdrawal also increases as the number of corporate governance proposals filed by a sponsor increases. Managers are more successful in negotiating a compromise that leads to a withdrawal prior to 1992, whereas proposal sponsors are more successful in achieving proposal adoptions without a compromise after 1992. We also find that withdrawn proposals are associated with a positive valuation effect before 1992 and a negative valuation effect after 1992. We conclude that negotiations between managers and shareholders are most effective when both parties can contribute to the negotiation process and that tilting the process in favor of one party has adverse effects.