Although the owners of publicly traded companies have had the right to offer shareholder proposals using Rule 14a-8 for several decades, the effectiveness of the rule has been frequently questioned because few of these proposals received substantial support from other shareholders and even fewer have been implemented by boards. Using new data from the 2002–2004 proxy seasons, we analyze shareholder voting patterns on these proposals, board reactions to them, and market responses. We find some big changes from earlier periods: many more proposals are receiving majority shareholder support during our sample period relative to earlier studies, and this support has translated into directors implementing more of the actions called for by shareholders. In particular, boards are increasingly willing to remove important anti-takeover defenses, such as the classified board and poison pill, in response to shareholders' requests, something rarely seen in the past. Despite the increase in support for shareholder proposals and board action in response, we find small and insignificant stock market reaction. We conclude that shareholder proposals under Rule 14a-8 have an emerging role in reducing agency costs by increasing director responsiveness to shareholder concerns to open the market more fully to corporate control.

Using data from the 1998 proxy season, we find that higher levels of potential dilution from management-sponsored, executive-only stock option plans result in significantly negative cumulative abnormal returns in the 3-day period surrounding the proxy date. We also present evidence of a significantly negative relationship between the percentage vote against the option proposal and the percentage change in executive pay from the 1998 to 1999 compensation years. We interpret this finding to support the idea that boards of directors are responsive to shareholder concerns about CEO option awards following a high level of shareholder opposition.

Using a large dataset of hand-collected information on activist interventions from 2008 to 2014, we examine why certain hedge funds succeed in the face of competition. We document that the top hedge funds succeed, not merely because of how they select targets, but because they acquire a reputation for what we label “clout and expertise.” These hedge funds do not intervene more frequently; to the contrary, activists with more interventions are associated with lower returns. Instead, top activists have a demonstrated ability to succeed in difficult interventions by targeting large firms, launching successful proxy fights, filing and winning lawsuits, pressuring target boards through the media, overcoming anti-takeover defenses, and replacing board members. These activists' successes appear to result more from board representation, improved performance, and monitoring management than from capital structure or dividend policy changes.

We examine how legal standards affect outcomes in shareholder lawsuits where the defendants create Special Litigation Committees (SLCs). We compile a hand-collected sample of SLC associated lawsuits spanning a 26-year period from Jan 1, 1990 through Dec 31, 2015. We produce extensive descriptive statistics on the utilization, role and effect of SLCs. We find evidence that law matters for SLC outcomes: case dismissals are the lowest in Delaware jurisdiction where the courts apply stricter standards of judicial review. But in states with the weakest legal standards for SLC judicial review, SLC cases are more likely to be dismissed. Defense lawyers appear to exploit these differences to obtain dismissals at a higher rate, potentially impacting shareholder value. Our results have implications for the legal standard of review for SLC cases.

Defense litigation counsel are retained by target firm management to defend them in mergers and acquisition (M&A) litigation. We use hand collected data from a ten-year period (2003−2012) to examine whether the choice of defense litigation counsel affects the outcome of M&A litigation and shareholder value. We construct league tables for defense litigation firms and identify the top 10 defense litigation firms. Comparing these firms with all other defense litigation firms, we find that top defense litigation counsel are involved in a significantly higher proportion of cash deals, non-same-industry deals (implying a lower possibility of antitrust-related concerns), and friendlier deals, all of which are associated with smaller initial takeover premium proposals. We find evidence that, controlling for endogeneity, top defense litigation counsel negotiate cheaper and faster settlements than other defense litigation counsel thereby protecting low premium deals from more serious challenges. We also show that top defense litigation counsel are more effective in multijurisdictional litigation cases, again obtaining cheaper and faster settlements in low premium deals, which we theorize shows that they are better able to handle the complexity and strategy that accompany these lawsuits.

ABSTRACT Using a large hand‐collected data set from 2001 to 2006, we find that activist hedge funds in the United States propose strategic, operational, and financial remedies and attain success or partial success in two‐thirds of the cases. Hedge funds seldom seek control and in most cases are nonconfrontational. The abnormal return around the announcement of activism is approximately 7%, with no reversal during the subsequent year. Target firms experience increases in payout, operating performance, and higher CEO turnover after activism. Our analysis provides important new evidence on the mechanisms and effects of informed shareholder monitoring.

Using hand-collected data, we examine the targeting of shareholder class action lawsuits in merger and acquisition (M&A) transactions, and the associations of these lawsuits with offer completion rates and takeover premia. We find that M&A offers subject to shareholder lawsuits are completed at a significantly lower rate than offers not subject to litigation, after controlling for selection bias, different judicial standards, major offer characteristics, M&A financial and legal advisor reputations as well as industry and year fixed effects. M&A offers subject to shareholder lawsuits have significantly higher takeover premia in completed deals, after controlling for the same factors. Economically, the expected rise in takeover premia more than offsets the fall in the probability of deal completion, resulting in a positive expected gain to target shareholders. However, in general, target stock price reactions to bid announcements do not appear to fully anticipate the positive expected gain from potential litigation. We find that during a merger wave characterized by friendly single-bidder offers, shareholder litigation substitutes for the presence of a rival bidder by policing low-ball bids and forcing offer price improvement by the bidder.