Shareholder Activism through Proxy Proposals: The European Perspective


  • We are grateful for valuable suggestions from two anonymous referees, André Betzer, Marshall E. Blume, Diana Bonfim (discussant), Fabio Braggion, Bonnie Buchanan (discussant), Geraldo Cerqueiro, John Doukas (the editor), Baran Düzce, Gerard Hertig, Aukje Leufkens, Catherine M. Schrand, Erik Vermeulen, Dirk Zetzsche, and participants at the China International Conference in Finance in Beijing, the Columbia University/Duisenberg School of Finance Business Law and Innovation Conference in Amsterdam, the EFMA Annual Meetings in Aarhus, the EFM Symposium on Corporate governance and Control in Cambridge, the Law and Finance Roundtable in Oxford, the Portuguese Finance Network's 6th Finance Conference in Ponta Delgada, the Wharton-Cambridge Research Day, and a seminar at the University of Cambridge. All remaining errors are our own. The paper was supported by a Hungarian Eötvös Grant.


This paper is the first to investigate the corporate governance role of shareholder-initiated proxy proposals in European firms. Proposal submissions in Europe remain infrequent compared to the USA, especially in Continental Europe. In the UK proposals typically relate to a proxy contest seeking board changes, while in Continental Europe they are more focused on specific governance issues. There is some evidence that proposal sponsors are valuable monitors, because the target firms tend to underperform and have low leverage. Sponsors also consider the ownership structure of the firm, because proposal probability increases in the target's ownership concentration and the equity stake of institutional investors. While proposals enjoy limited voting success across Europe, they are relatively more successful in the UK. The outcomes are strongest for proposals targeting the board but are also affected by the target characteristics including the CEO's pay-performance sensitivity. Proposals are met with a significant negative abnormal return of −1.23%, when they are voted upon at general meetings. The low voting support gathered by proposals and the strongly adverse market reaction suggest that shareholders of European companies use proposals as an emergency brake rather than a steering wheel.