The frequency of say-on-pay vote, shareholder value, and corporate governance

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Abstract

Using a sample of 1,079 public firms listed on the U.S. stock market that filed the results of their frequency votes in 2011, we examine the market reaction to shareholders’ decision on the frequency of the say-on-pay vote, and the relation between such decision and firms’ existing corporate governance structures. When firms release the results of their shareholders’ frequency vote in Form 8-K, we find that market reaction was significantly positive for firms with excess CEO equity pay, and for firms whose shareholders’ preference for the frequency is the same as that recommended by the board. This positive market reaction is more pronounced for firms where shareholders change the recommendations of the boards by demanding more frequent votes on executive compensation. Overall, our study on the frequency of votes provides new insights that are different from prior studies, which mostly focus on say-on-pay votes. We show that the market perceives the shareholders’ frequency vote as a value-increasing governance mechanism and a complement to the existing corporate governance.

Keywords: Corporate Governance, Shareholder Activism, Shareholder Value, Corporate Transparency

Authors’ individual contribution: Conceptualization — N.L.; Methodology — N.L.; Validation — J.J.; Formal Analysis — N.L.; Investigation — J.J.; Data Curation — N.L.; Writing — Original Draft — N.L.; Writing — Review & Editing — J.J.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: G34, G38, J33, M12

Received: 01.12.2021
Accepted: 25.01.2022
Published online: 27.01.2022

How to cite this paper: Jin, J., & Li, N. (2022). The frequency of say-on-pay vote, shareholder value, and corporate governance. Corporate Ownership & Control, 19(2), 46–59. https://doi.org/10.22495/cocv19i2art4