This paper examines a sample of firms experiencing proxy contests for seats on their board of directors. Dissident shareholders usually fail to obtain a majority of board seats. Nevertheless, they capture some seats, via mechanisms such as cumulative voting, in over half of the sample contests. Regardless of proxy contest outcome, positive and statistically significant share price performance is associated with the contest. That finding is predicted by the standard economic analysis of proxy contests, in which the challenges benefit shareholders by improving corporate performance. The finding runs counter to the claim of Berle (1962) that the economists' view of proxy contests is ‘a wholly imaginary picture’. A portion of the positive share price changes taking place in the early stages of some proxy contests is not permanent, however, and as suggested by Manne (1962) is at least partially attributable to temporary increases in the market value of the vote attached to corporate shares.

BANKRUPTCY COSTS are the deadweight economic costs of firms going bankrupt. They include both ex post bankruptcy costs incurred after a firm's bankruptcy filing, such as transactions costs, and ex ante bankruptcy costs incurred before the filing, such as those resulting from creditors' attempts to reduce their losses if bankruptcy occurs and/or managers' attempts to raise the expected return to equity by increasing the firm's risk.1 This paper has two purposes. First it proposes a model of bankruptcy costs which focuses on the costs of inefficient decision making before the firm's actual bankruptcy filing. The model implies upper bound expressions for total bankruptcy costs. Second, the new U.S. Bankruptcy Code2 went into effect late in 1979 and made important changes in bankruptcy reorganization procedures. The paper poses the question of whether the changes made under the new Code tend to raise or lower aggregate U.S. bankruptcy costs. We approach this question by calculating the upper bound expressions suggested by the model, using parameter values from both before and after the new Code took effect.