DP10506 Does Mandatory Shareholder Voting Prevent Bad Acquisitions?

Author(s): Marco Becht, Andrea Polo, Stefano Rossi
Publication Date: March 2015
Keyword(s): corporate acquisitions, corporate governance, shareholder voting
JEL(s): G34, K22
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=10506

Previous studies of voting on acquisitions are inconclusive because shareholder approval in the United States is discretionary for management. We study the U.K. where approval is mandatory for deals that exceed a multivariate relative size threshold. We find that in the U.K. shareholders gain 8 cents per dollar at announcement with mandatory voting, or $13.6 billion over 1992-2010 in aggregate; without voting U.K. shareholders lost $3 billion. U.S. shareholders lost $214 billion in matched deals. Differences-in-differences and regression discontinuity analyses support a causal interpretation. The evidence suggests that mandatory voting imposes a binding constraint on acquirer CEOs.