G. William Glezen, James A. Millar, An Empirical Investigation of Stockholder Reaction to Disclosures Required by ASR No. 250, Journal of Accounting Research, Vol. 23, No. 2 (Autumn, 1985), pp. 859-870

Reviews the book "The Market for Compilation, Review, and Audit Services," by Jerry L. Arnold and Michael A. Diamond.

An active market for corporate control has prompted corporate managers to lobby for measures that protect their positions. It has been argued that corporate managements have worked to entrench themselves at the expense of outside shareholders and have pressured institutional investors (including banks) to vote on corporate matters in a manner supportive of managements' proposals. One source of potential pressure arises when bank fiduciaries manage employee savings plans, pension funds, and engage in other fee generating corporate trust activities for firms whose shares they vote. In addition, banks often extend commercial credit to firms whose shares the trust division votes. Finally, director interlock between banks and corporations is likely to bias voting behavior. Fiduciary loyalty may be compromised by bankers' concern that failure to support management can threaten business relationships. The objective of this study is to investigate the effects of conflicting relationships on the voting behavior of banks as fiduciaries. The empirical results indicate that where director interlock and income-related relationships exist, banks tend to vote in favor of management antitakeover proposals; however, where these business relationships do not exist banks tend to vote against such proposals.

In an investigation of possible relationships between shareholder voting turnout, trading volume after the record data, and the intervals between the record and meeting dates, we find that higher trading volume and more trading days between the record date and the receipt of proxy materials both reduce voting turnout. A longer interval between the receipt of proxy materials and the meeting increases turnout, as does greater solicitation expense. Our tests show that management mails proxies further in advance of the meeting when its proposals require a majority of shares outstanding, as opposed to votes cast, for approval.

Auditing, Auditor change, Public sector, Audit quality