Do Voting Rights Matter: Evidence From the Adoption of Equity-based Compensation Plans
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 evide...
| Main Authors: | , , |
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| Format: | Working Paper |
| Language: | en_US |
| Published: |
2004
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| Subjects: | |
| Online Access: | http://hdl.handle.net/1721.1/4051 |
| _version_ | 1826211808265895936 |
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| author | Weber, Joseph Joos, Peter Balachandran, Sudhakar |
| author_facet | Weber, Joseph Joos, Peter Balachandran, Sudhakar |
| author_sort | Weber, Joseph |
| collection | MIT |
| description | 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 |
| first_indexed | 2024-09-23T15:11:43Z |
| format | Working Paper |
| id | mit-1721.1/4051 |
| institution | Massachusetts Institute of Technology |
| language | en_US |
| last_indexed | 2024-09-23T15:11:43Z |
| publishDate | 2004 |
| record_format | dspace |
| spelling | mit-1721.1/40512019-04-11T09:45:30Z Do Voting Rights Matter: Evidence From the Adoption of Equity-based Compensation Plans Weber, Joseph Joos, Peter Balachandran, Sudhakar voting rights corporate governance regulation SEC transparency accounting agency theory stock options equity based compensation incomplete contracts governance 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 2004-02-13T20:00:59Z 2004-02-13T20:00:59Z 2004-02-13T20:00:59Z Working Paper http://hdl.handle.net/1721.1/4051 en_US MIT Sloan School of Management Working Paper;4442-03 315107 bytes application/pdf application/pdf |
| spellingShingle | voting rights corporate governance regulation SEC transparency accounting agency theory stock options equity based compensation incomplete contracts governance Weber, Joseph Joos, Peter Balachandran, Sudhakar Do Voting Rights Matter: Evidence From the Adoption of Equity-based Compensation Plans |
| title | Do Voting Rights Matter: Evidence From the Adoption of Equity-based Compensation Plans |
| title_full | Do Voting Rights Matter: Evidence From the Adoption of Equity-based Compensation Plans |
| title_fullStr | Do Voting Rights Matter: Evidence From the Adoption of Equity-based Compensation Plans |
| title_full_unstemmed | Do Voting Rights Matter: Evidence From the Adoption of Equity-based Compensation Plans |
| title_short | Do Voting Rights Matter: Evidence From the Adoption of Equity-based Compensation Plans |
| title_sort | do voting rights matter evidence from the adoption of equity based compensation plans |
| topic | voting rights corporate governance regulation SEC transparency accounting agency theory stock options equity based compensation incomplete contracts governance |
| url | http://hdl.handle.net/1721.1/4051 |
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