BOLAGSSTÄMMAN I GENOMSNITT SVERIGE (N=39)
6. RESULTS
which according to Belsley, Kuh and Roy (2004) could produce misleading results. If we drop the interaction, all scores are below 2, and our results are practically unchanged (compare model 2 and 3 and 4 and 5, respectively, in tables 4 and 5, respectively), indicating that multicollinearity is not a problem.
5.5 Statistical methods
To identify whether firms that are amenable to activism are actually targeted, we estimate three regression models with the different measures of shareholder activism as dependent variables.
We use population-averaged Poisson models, because the dependent variable is a count variable.
We do not use firm fixed effects models, because our amenability measure is a function of ownership structure, which is stable over time and therefore co-varies with the fixed firm effect.
For this particular reason, a number of recent papers question the use of fixed firm effects.7 We choose averaged models rather than random effects models, because population-averaged models allow us to explicitly model the correlation structure and produce robust standard errors by clustering standard errors by firm.8 A model for correlation is especially important when observations are unbalanced and mistimed, as it is the case with our data set.
Considering the repeated measures over time, we use an auto-regressive correlation structure with one lag. In addition, we scale standard errors to account for the over-dispersion caused by the many zero-observations.
Since the time-invariant characteristic of the amenability measure in effect leaves us with a cross-section, we can test the robustness of the population-averaged models by running pooled OLS regressions. Doing this does not change our results (not tabulated).
amenability and stock return. Models 2 and 5 do not include the interaction, whereas models 3 and 6 include all variables.
Nomination committee Other shareholders
Variable 1 2 3 4 5 6
1. Amenability 0.13***
(3.94)
0.12***
(3.79)
0.13***
(3.90)
-0.47**
(-3.24)
-0.50***
(-3.51)
-0.67***
(-4.31) 2. Board proposals -0.08***
(-4.66)
-0.09***
(-4.71)
-0.09***
(-4.72)
-0.20**
(-3.29)
-0.21**
(-3.43)
-0.20**
(-3.18)
3. Foreigner 0.09*
(1.97)
0.09†
(1.96)
0.59*
(2.58)
0.59*
(2.59)
4. Interaction (1,5) -0.03
(-0.42)
0.42**
(2.83) 5. Stock return -0.01
(-0.29)
-0.01 (-0.25)
0.02 (0.27)
0.54***
(4.29)
0.55***
(4.41)
0.06 (0.25) 6. Return on equity 0.02*
(2.11)
0.00*
(2.15)
0.00*
(2.17)
-0.01†
(-1.75)
-0.00†
(-1.76)
-0.01†
(-1.81)
7. Firm size 0.09***
(7.16)
0.08***
(6.99)
0.08***
(6.99)
0.19***
(3.84)
0.16**
(3.16)
0.15**
(2.98)
8. Firm value -0.05†
(-1.89)
-0.05†
(-1.87)
-0.05†
(-1.90)
-0.00 (-0.01)
0.00 (0.01)
-0.00 (-0.07)
9. Leverage -0.49**
(-3.13)
-0.48**
(-3.08)
-0.48**
(-3.10)
-2.80***
(-3.96)
-2.67***
(-3.76)
-2.96***
(-4.06)
2 64.65*** 69.68*** 69.94*** 75.63*** 83.59*** 90.64***
† p < 0.10; * p < 0.05; ** p < 0.01; *** p < 0.001
Table 4: Determinants of shareholder proposals. Population-averaged Poisson models. We use an auto regressive correlation structure with one lag and scale standard errors to account for the over-dispersion caused by the many zero-observations. Standard errors are robust. T-statistics are reported in parentheses. The panel has 461 firm-year observations and 158 unique firms. Year dummies and a constant are included but not reported. Nomination committee is the number of proposals made by the nomination committee. Other shareholders is the number of proposals made by other shareholders than those who are members of the nomination committee. Amenability is the average percentage decrease in the largest shareholder’s voting power when one more shareholder successively is added to the decision-making process. Board proposals is the number of proposals made by the board. Foreigner is a dummy variable equal to 1 if the largest shareholder is a foreigner and 0 otherwise. Stock return is the dividend-adjusted stock return in the year prior to the shareholder meeting. Return on equity is the book return on equity in the year prior to the shareholder meeting. Firm size is the natural logarithm of the book value of total assets in the year of the shareholder meeting. Firm value is the market value of equity plus the book value of total debt all divided by the book value of total assets in the year of the shareholder meeting. Leverage is the book value of total debt divided by the book value of total assets also in the year of the shareholder meeting.
First, we examine the number of proposals made by the nomination committee. Our amenability measure, the average decrease in the largest shareholder’s voting power by mobilizing an additional 1 % votes, has the expected positive effect on the number of proposals made by the nomination committee, and it is highly significant (model 1: t=3.94, p<0.001; model 2: t=3.79, p<0.001; model 3: t=3.90, p<0.001). This result lends support to hypothesis 1. We also observe the expected negative effect of board proposals, indicating a substitution between board and nomination committee proposals (model 1: t=-4.66, p<0.001; model 2: t=-4.71, p<0.001; model
3: t=-4.72, p<0.001). This result lends support to hypothesis 2. Finally, the nomination committee makes more proposals in firms with significant foreign ownership (model 2: t=1.97, p<0.05;
model 3: t=1.96, p<0.10), indicating that foreign owners are more likely to prefer overt activism to exerting their influence informally behind the scenes. This result lends support to hypothesis 3.
Among the control variables, firm size and leverage come out as expected. The nomination committee makes more proposals in larger firms (model 1: t=7.16, p<0.001; model 2: t=6.99, p<0.001; model 3: t=6.99, p<0.001) and fewer proposals in leveraged firms (model 1: t=-3.13, p<0.01; model 2: t=-3.08, p<0.01; model 3: t=-3.10, p<0.01), where banks and other creditors may exert significant informal influence. The nomination committee is less active in firms with lower value (model 1: t=-1.89, p<0.10; model 2: t=-1.87, p<0.10; model 3: t=-1.90, p<0.10), which is in accordance with our expectation, but it is more active in firms with higher accounting returns (model 1: t=2.11, p<0.05; model 2: t=2.15, p<0.05; model 3: t=2.17, p<0.05), which is contrary to our expectation. The other control variables turn out not to be significant. For example, the nomination committee is no more active in firms with low stock market performance.
Secondly, we examine the number of proposals made by other shareholders. Contrary to our initial expectation, amenability is significantly negatively related to the number of proposals made by other shareholders (model 4: 3.24, p<0.01; model 5: 3.51, p<0.001; model 6: t=-4.31, p<0.001). This result does not lend support to hypothesis 1. We conjecture that this result reflects the substitution effect identified in the section on nomination committees. Proposals by the board and the nomination committee preempt activity by other shareholders. In other words, if minority shareholders have influence, they will tend to use it in the nomination committee rather than engaging in overt activism. If they have no chance of influence, they may make a symbolic appearance to enjoy their 15 minutes of fame, or to use the limelight to exert social pressure on incumbent owners and other firms.
In contrast, hypotheses 2 and 3 are supported. If the board is active, shareholders are less likely to be so (model 4: t=-3.29, p<0.01; model 5: t=-3.43, p<0.01; model 6: t=-3.18, p<0.01). There are more shareholder proposals by firms with strong foreign ownership (model 5: t=2.58, p<0.05;
model 6: t=2.59, p<0.05), perhaps because foreign owners are less likely to engage in behind the scenes horse trading. As for the control variables, firm size (model 4: t=3.84, p<0.001; model 5:
t=3.16, p<0.01; model 6: t=2.98, p<0.01) and leverage (model 4: 3.96, p<0.001; model 5: t=-3.76, p<0.001; model 6: t=-4.06, p<0.001) are significant as in the previous models, and accounting returns now have the expected negative effect (model 4: 1.75, p<0.1; model 5: t=-1.76, p<0.1; model 6: t=-1.81, p<0.1), indicating that shareholders are less likely to make proposals when the firm is performing well. However, we find a contrary effect of stock market performance: shareholders are more rather than less likely to make proposals when stock returns are high (model 4: t=4.29, p<0.001; model 5: t=4.41, p<0.001; not significant for model 6). We
speculate that, having controlled for accounting performance, high stock returns may signal exceptional interest in the firm.
Table 5 contains our results on the determinants of negative influence (board proposals voted against: models 1, 2 and 3) and shareholders voicing opinions (models 4, 5 and 6). Apart from different dependent variables, the setup of the models is identical to that in table 4.
Proposals voted against Opinions expressed
Variable 1 2 3 4 5 6
1. Amenability -0.18
(-1.41)
-0.21†
(-1.69)
-0.31*
(-2.30)
-0.09 (-0.56)
-0.09 (-0.55)
-0.14 (-0.82) 2. Board proposals 0.17***
(4.88)
0.17***
(4.96)
0.17***
(5.07)
-0.00 (-0.04)
-0.00 (-0.03)
0.00 (0.03)
3. Foreigner 0.31
(1.55)
0.31 (1.55)
-0.03 (-0.11)
-0.03 (-0.11)
4. Interaction(1,5) 0.29†
(1.82) 0.21
(0.81)
5. Stock return 0.01
(0.05)
0.02 (0.14)
-0.35 (-1.41)
0.23 (1.21)
0.23 (1.21)
-0.01 (-0.03) 6. Return on equity 0.00
(0.57)
0.00 (0.39)
0.00 (0.48)
-0.00 (-0.53)
-0.00 (-0.52)
-0.00 (-0.57)
7. Firm size 0.23***
(4.77)
0.22***
(4.48)
0.22***
(4.51)
0.08 (1.26)
0.08 (1.26)
0.08 (1.24)
8. Firm value -0.00
(-0.57)
-0.00 (-0.58)
-0.00 (-0.61)
-0.16†
(-1.94)
-0.16†
(-1.94)
-0.16†
(-1.89)
9. Leverage -0.35
(-0.68)
-0.28 (-0.54)
-0.34 (-0.65)
-1.19†
(-1.82)
-1.19†
(-1.82)
-1.22†
(-1.85)
2 68.38*** 70.69*** 74.11*** 21.33* 21.34* 21.90*
† p < 0.10; * p < 0.05; ** p < 0.01; *** p < 0.001
Table 5: Determinants of negative influence and voice. Models 1 to 3 are population-averaged Poisson models, and models 4-6 are population-averaged Logit models. We use an auto regressive correlation structure with one lag and scale standard errors to account for the over-dispersion caused by the many zero-observations. Standard errors are robust. T-statistics are reported in parentheses. The panel has 461 firm-year observations and 158 unique firms.
Year dummies and a constant are included but not reported. Proposals voted against is the number of board proposals voted against. Opinions expressed is a dummy variable equal to 1 if any shareholder expressed opinions that were taken to the minutes and 0 otherwise. Amenability is the average percentage decrease in the largest shareholder’s voting power when one more shareholder successively is added to the decision-making process. Board proposals is the number of proposals made by the board. Foreigner is a dummy variable equal to 1 if the largest shareholder is a foreigner and 0 otherwise. Stock return is the dividend-adjusted stock return in the year prior to the shareholder meeting. Return on equity is the book return on equity in the year prior to the shareholder meeting. Firm size is the natural logarithm of the book value of total assets in the year of the shareholder meeting. Firm value is the market value of equity plus the book value of total debt all divided by the book value of total assets in the year of the shareholder meeting. Leverage is the book value of total debt divided by the book value of total assets also in the year of the shareholder meeting.
Voting against turns out to be less rather than more likely if a firm is amenable to activism (not significant for model 1; model 2: t=-1.69, p<0.1; model 3: t=-2.30, p<0.05). This result does not
lend support to hypothesis 1. Again, we conjecture that shareholders use whatever influence they have to influence the nomination committee and the board. If they have little influence in these settings, they are more likely to vote against the incumbent managers and owners. Increased activity by the nomination committee and increased receptivity to shareholders by the board may make shareholders more satisfied and so less likely to vote against. Board proposals have a positive effect on voting against (model 1: t=4.88, p<0.001; model 2: t=4.96, p<0.001; model 3:
t=5.07, p<0.001), but this is more of a tautological than behavioral effect: the more proposals, the more there are to vote against.
The control variables have insignificant effects with a predicted positive effect of firm size as the only exception (model 1: t=4.77, p<0.001; model 2: t=4.48, p<0.001; model 3: t=4.51, p<0.001).
Controlling for ownership concentration (through the amenability measure) and firm value, firm size may be an indication of the amount invested by individual stakeholders. This would then indicate that shareholders are more likely vote against, the more they have invested in the firm.
Finally, voice (opinions expressed) is not influenced by amenability either, nor by board proposals or foreign ownership. In other words, our key hypotheses are rejected. Control variables such as stock return, return on equity and firm size do not have any significant effect.
Firm value (model 4: t=-1.94, p<0.1; model 5: t=-1.94, p<0.1; model 6: t=-1.89, p<0.1) and leverage (model 4: t=-1.82, p<0.10; model 5: t=-1.82, p<0.10; model 6: t=-1.85, p<0.10) appear to co-vary negatively with voice, but the effect is weak and only significant at the 10 % level.
Overall, the model fit is less good than for the previous models, which indicate that much of the voice activity is random, e.g. related to irrelevant issues such as the lunch served after the meeting, expressing political views or just making an appearance (Nordén and Strand, 2009).