Essays on shareholder voting

Abstract

"Shareholder ratification of corporate actions is an important part of the corporate governance process. In this thesis, I examine the determinants of shareholder dissent in the context of three actions proposed for shareholder approval at the annual meeting of Indian companies, namely, adoption of annual financial statements, appointment of directors, and reappointment of auditors of the firm. In the first essay, I study the relationship between shareholders’ voting dissent on adoption of financial statements and the quality of reported earnings in Indian firms. I find that dissent expressed by institutional shareholders is inversely related to the firm’s earnings quality. In contrast, retail shareholder dissent is influenced by firm’s financial performance and stock market returns. Further, my results suggest that firms respond to institutional dissent by reporting earnings of improved quality in the subsequent year. This study contributes to the literature on shareholder perceptions of firm’s financial statements and identifies differences in voting patterns of different types of shareholders on ratification of firm’s financial statements. In the second essay, I examine the impact of directors’ education and work experience on shareholder votes on their appointments to firm boards. I find that institutional shareholders’ dissent is negatively related to the directors’ education level. The results suggest that institutions express lower dissent when directors hold a master’s degree in management. I also find evidence of higher shareholder support for directors with government experience. Overall, the findings of the study contribute to knowledge on shareholder’s participation in director elections and their voting behaviour in light of directors’ biographical characteristics. In the third and final essay, I examine shareholder votes on auditor reappointments and examine if institutional dissent on auditor reappointment acts as a disciplining mechanism on subsequent auditor actions. My results indicate that institutional shareholder dissent is positively related to relative magnitude of non-audit services (NAS) fees. More importantly, I observe that auditors are sensitive to institutional dissent and respond by charging lower NAS fees and providing superior audit quality in the subsequent year to signal increased independence and objectivity. My findings reinforce the role of institutional shareholders as important monitors in the corporate governance process."