Do Voting Rights Matter: Evidence From the Adoption of Equity-based Compensation Plans
Name
4442-03.pdf
Size
307.72 KB
Format
Adobe PDF
Checksum (MD5)
7f7660339a7d0b8c8e3573d404849ec6
Author(s)
Weber, Joseph
Joos, Peter
Balachandran, Sudhakar
Date Issued
February 13, 2004
Series/Report no.
MIT Sloan School of Management Working Paper;4442-03
Abstract
Recent corporate scandals and subsequent regulatory actions have heightened both the academic communities and the public's interest in corporate governance issues. Academics have long argued that voting rights constitute a critical component of a system of corporate governance. We provide evidence on the importance of one aspect of the firm's corporate governance system, namely shareholders' voting rights, by examining the determinants of the decision to grant equity-based compensation to the employees of the firm with or without shareholder approval. We find that poorly-performing firms and poorly-governed firms are more likely to adopt equity-based compensation plans without shareholder approval. Furthermore, when we examine financial performance subsequent to adoption of equity-based compensation plans, we find that poorly-governed firms that adopt equity-based compensation plans without consulting shareholder do not appear to gain any significant benefits associated with the incentives the plans are supposed to provide. In fact, in the year after an equity-based compensation plan is adopted, these firms perform worse than firms that have good systems of corporate governance or firms that place equity-based compensation plans to a shareholder vote. Overall, our results suggest that shareholder voting rights are an important tool of corporate governa
Subjects
voting rights
corporate governance
regulation
SEC
transparency
accounting
agency theory
stock options
equity based compensation
incomplete contracts
governance
Persistent DSpace Link
