Lower Defeat Thresholds for Minority Shareholders and Corporate Governance: Evidence from the Australian “Two-Strikes” Rule

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

Lower Defeat Thresholds for Minority Shareholders and Corporate Governance: Evidence from the Australian “Two-Strikes” Rule

Bugeja, M

da Silva Rosa, R Shan, Y

Walter, T Yermack, D

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Publisher:: American Accounting Association
Publication Type:: Journal Article
Citation:: Accounting Review, 2023, 98, (7), pp. 61-96
Issue Date:: 2023-11-01

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Field	Value	Language
dc.contributor.author	Bugeja, M https://orcid.org/0000-0002-1941-5092
dc.contributor.author	da Silva Rosa, R
dc.contributor.author	Shan, Y https://orcid.org/0000-0003-2156-8722
dc.contributor.author	Walter, T
dc.contributor.author	Yermack, D
dc.date.accessioned	2024-03-07T03:45:16Z
dc.date.available	2024-03-07T03:45:16Z
dc.date.issued	2023-11-01
dc.identifier.citation	Accounting Review, 2023, 98, (7), pp. 61-96
dc.identifier.issn	0001-4826
dc.identifier.issn	1558-7967
dc.identifier.uri	http://hdl.handle.net/10453/176244
dc.description.abstract	This study assesses the impact of minority shareholder empowerment via lower defeat thresholds in “say-on-pay” votes on CEO compensation and career prospects for directors. We exploit the adoption of the Australian “two-strikes” rule as a quasi-exogenous shock, which empowers shareholders to vote on board dismissal if a firm’s remuneration report receives 25 percent or more dissent votes for two consecutive years. Using a difference-in-differences methodology, we find that firms respond to a “strike” by curbing excessive CEO pay. Under the two-strikes regime, independent directors are held more accountable for poor oversight and experience significant reputational penalties in terms of turnover and the loss of outside directorships subsequent to receiving a strike. The results are mainly driven by firms receiving a nonmajority strike, indicating that the effectiveness of the two-strikes regime stems largely from the lower defeat threshold.
dc.language	en
dc.publisher	American Accounting Association
dc.relation	http://purl.org/au-research/grants/arc/DP210101004
dc.relation.ispartof	Accounting Review
dc.relation.isbasedon	10.2308/TAR-2020-0434
dc.rights	info:eu-repo/semantics/openAccess
dc.subject	1501 Accounting, Auditing and Accountability
dc.subject.classification	Accounting
dc.subject.classification	3501 Accounting, auditing and accountability
dc.subject.classification	3502 Banking, finance and investment
dc.title	Lower Defeat Thresholds for Minority Shareholders and Corporate Governance: Evidence from the Australian “Two-Strikes” Rule
dc.type	Journal Article
utslib.citation.volume	98
utslib.for	1501 Accounting, Auditing and Accountability
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	*
dc.date.updated	2024-03-07T03:45:15Z
pubs.issue	7
pubs.publication-status	Published
pubs.volume	98
utslib.citation.issue	7

Abstract:

This study assesses the impact of minority shareholder empowerment via lower defeat thresholds in “say-on-pay” votes on CEO compensation and career prospects for directors. We exploit the adoption of the Australian “two-strikes” rule as a quasi-exogenous shock, which empowers shareholders to vote on board dismissal if a firm’s remuneration report receives 25 percent or more dissent votes for two consecutive years. Using a difference-in-differences methodology, we find that firms respond to a “strike” by curbing excessive CEO pay. Under the two-strikes regime, independent directors are held more accountable for poor oversight and experience significant reputational penalties in terms of turnover and the loss of outside directorships subsequent to receiving a strike. The results are mainly driven by firms receiving a nonmajority strike, indicating that the effectiveness of the two-strikes regime stems largely from the lower defeat threshold.

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http://hdl.handle.net/10453/176244