In the United Kingdom, corporate acquisition deals larger than 25% in relative size are subject to a mandatory shareholder vote, while in most of continental Europe there is no vote, and in Delaware voting is largely discretionary. In a new paper by Marco Becht, Professor of Corporate Governance at the Université libre de Bruxelles; Andrea Polo of the Department of Economics and Business at the Universitat Pompeu Fabra and Barcelona GSE; and Stefano Rossi of the Department of Finance at Purdue University studies the effect shareholder engagement has on preserving shareholder value in these kinds of large-scale acquisition transactions. Their study concludes that mandatory voting makes boards more likely to refrain from overpaying or from proposing deals that are not in the interest of shareholders.
According to the paper's abstract:
In the United Kingdom, corporate acquisition deals larger than 25% in relative size are subject to a mandatory shareholder vote, while in most of continental Europe there is no vote, and in Delaware voting is largely discretionary. In a new paper by Marco Becht, Andrea Polo, and Stefano Rossi studies the effect shareholder engagement has on preserving shareholder value in these kinds of large-scale acquisition transactions. Their study concludes that mandatory voting makes boards more likely to refrain from overpaying or from proposing deals that are not in the interest of shareholders.
How does mandatory voting bring about these positive results? The paper infers that mandatory voting makes boards more likely to refrain from overpaying or from proposing deals that are not in the interest of shareholders. The authors found that shareholders never voted against this class of acquisition transactions ex-post and deals that were poorly received by the market at announcement were often dropped before they reached the voting stage.
The results show that giving shareholders a direct decision right over large transactions can have a positive causal effect by discouraging bad corporate acquisitions.