May 19, 2003
Ikenberry Quoted in ISS Article on Proxy Contests
A May 16, 2003, article about proxy contents on the Institutional Shareholder Services (ISS) websites quotes Department of Finance chair David Ikenberry, one of the authors of a 1993 report on the topic.
The ISS article by Michael Bruno says that proxity contests are where "(a)ngry shareholders, riled by subdued stock markets and emboldened by corporate governance awareness, are flexing their muscles." Statistics indicate that this is a growing trend: there were three such contests in 1993, 30 in 2000, 40, in 2001, and 38 in 2002.
Ikenberry commented on the current proxy contests, noting that the economy is "coming off three years of dismal stock performance" that has left "a shareholder base that is pretty grumpy." He noted that proxy fights can be viewed as a "disciplinary mechanism" because different stockholders are looking for different things: one group is looking for appropriate exit strategies and others are not. The latter group is, according to Bruno, "couching their arguments" in corporate governance terms.
Ikenberry, a professor of finance, and Josef Lakonishok, William G. Karnes Chair in finance, co-authored the 1993 report that studied 20 years of proxy contests. The article was published in The Journal of Business under the title "Corporate Governance through the Proxy Contest: Evidence and Implications." The abstract for the article is provided below:
"The current literature concerning proxy contests provides little evidence that shareholders suffer materially from sub par performance prior to a contest. Furthermore, no study has thoroughly examined the long-term performance of targeted firms subsequent to a proxy contest. Using a sample of 97 election contests during the period 1968-87, we find negative abnormal returns and deteriorating operating performance prior to the announcement of a contest. Following the contest, negative abnormal returns are observed. These negative returns are driven by cases in which dissident shareholders successfully acquire board seats. The results for accounting based operating performance measures confirm these findings."
College of Business
470C Wohlers Hall
University of Illinois at Urbana-Champaign
1206 South Sixth Street
Champaign, IL 61820