Voting methods for director election, monitoring costs, and institutional ownership

Kee H. Chung and Choonsik Lee

Journal of Banking & Finance, 2020, vol. 113, issue C

Abstract: We show that firms that employ the majority voting method for director election exhibit higher institutional ownership than firms that employ the plurality voting method, especially after the 2010 amendment to NYSE Rule 452. Firms that adopt majority voting in a bylaw or charter exhibit increases in institutional ownership and share price. These results are consistent with our conjecture that institutional investors favor companies with majority voting and investors react favorably to the adoption of majority voting because it reduces management monitoring costs by improving the accountability of elected board members.

Keywords: Majority voting; Monitoring costs; Institutional investors; Director accountability (search for similar items in EconPapers)
JEL-codes: G34 G38 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:113:y:2020:i:c:s0378426620300054

DOI: 10.1016/j.jbankfin.2020.105738

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