Life after a Shareholder Pay 'Strike': Consequences for ASX-Listed Firms

Bugeja, M; da Silva Rosa, R; Shan, Y; Walter, TS; Yermack, D

Life after a Shareholder Pay 'Strike': Consequences for ASX-Listed Firms

Bugeja, M

da Silva Rosa, R Shan, Y Walter, TS Yermack, D

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Publisher:: SSRN
Publication Type:: Journal Article
Citation:: CIFR Paper, 2016, (130/2016), pp. 1 - 55
Issue Date:: 2016-11-28

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Field	Value	Language
dc.contributor.author	Bugeja, M https://orcid.org/0000-0002-1941-5092	en_US
dc.contributor.author	da Silva Rosa, R	en_US
dc.contributor.author	Shan, Y	en_US
dc.contributor.author	Walter, TS	en_US
dc.contributor.author	Yermack, D	en_US
dc.date.issued	2016-11-28	en_US
dc.identifier.citation	CIFR Paper, 2016, (130/2016), pp. 1 - 55	en_US
dc.identifier.uri	http://hdl.handle.net/10453/116718
dc.description.abstract	“Say on pay” legislation has been introduced in several countries but Australia’s version, namely the “two-strikes” rule, is unique in that it empowers shareholders to vote on a board spill if the compensation report of a public company receives 25% or more dissenting votes for two consecutive years. We test the proposition that the “two strikes” rule has increased directors’ accountability beyond executive pay because it has substantially lowered the cost to activists of organizing sufficient votes to threaten managers with a board spill. Consistent with this expectation, we find Australian firms respond to negative say-on-pay votes by curbing excessive CEO pay, reducing the growth rate of pay and changing the pay mix. In addition, the results suggest that the market regards negative SOP votes as a value-destroying signal since there is a negative market reaction, lower valuation and long-run underperformance. We also find an increase in CEO turnover but directors do not seem to bear reputational costs through the loss of outside directorships. The findings provide important insights to investors, company directors and regulators.	en_US
dc.publisher	SSRN	en_US
dc.relation.ispartof	CIFR Paper	en_US
dc.relation.isbasedon	10.2139/ssrn.2876925	en_US
dc.title	Life after a Shareholder Pay 'Strike': Consequences for ASX-Listed Firms	en_US
dc.type	Journal Article
utslib.citation.volume	130/2016	en_US
utslib.for	150303 Corporate Governance and Stakeholder Engagement	en_US
utslib.for	150103 Financial Accounting	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Business/Accounting Discipline
utslib.copyright.status	open_access
pubs.consider-herdc	false	en_US
pubs.issue	130/2016	en_US
pubs.publication-status	Published online	en_US

Abstract:

“Say on pay” legislation has been introduced in several countries but Australia’s version, namely the “two-strikes” rule, is unique in that it empowers shareholders to vote on a board spill if the compensation report of a public company receives 25% or more dissenting votes for two consecutive years. We test the proposition that the “two strikes” rule has increased directors’ accountability beyond executive pay because it has substantially lowered the cost to activists of organizing sufficient votes to threaten managers with a board spill. Consistent with this expectation, we find Australian firms respond to negative say-on-pay votes by curbing excessive CEO pay, reducing the growth rate of pay and changing the pay mix. In addition, the results suggest that the market regards negative SOP votes as a value-destroying signal since there is a negative market reaction, lower valuation and long-run underperformance. We also find an increase in CEO turnover but directors do not seem to bear reputational costs through the loss of outside directorships. The findings provide important insights to investors, company directors and regulators.

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10453/116718