Top Banner

of 16

Mertens Seminar 28 Maart 2007[1]

Apr 10, 2018

Download

Documents

Welcome message from author
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
  • 8/8/2019 Mertens Seminar 28 Maart 2007[1]

    1/16

  • 8/8/2019 Mertens Seminar 28 Maart 2007[1]

    2/16

  • 8/8/2019 Mertens Seminar 28 Maart 2007[1]

    3/16

    Corporate Governance:

    How useful is shareholder invention?

    Gerard M.H. Mertens

    RSM Erasmus University

    [email protected]

  • 8/8/2019 Mertens Seminar 28 Maart 2007[1]

    4/16

    Substance or symbolism?Corporate governance practices of

    institutional investors

    April 2007Report to Eumedion/ Nederlandse Corporate

    Governance Stichting

    Abe de Jong, Gerard Mertens,

    Hans van Oosterhout, Helene Vletter-van Dort

  • 8/8/2019 Mertens Seminar 28 Maart 2007[1]

    5/16

  • 8/8/2019 Mertens Seminar 28 Maart 2007[1]

    6/16

    "What is the overallimportance to your firm

    of the corporategovernance of portfolio

    companies?"

    How do you expect yourfirms views of the

    importance of corporate

    governance to change

    over the next threeyears?

    78%

    63%

    0% 20% 40% 60% 80% 100%

    Continental

    Europe (n=59)

    Average(n=322)

    Significantly orSomewhat More

    61 %

    71%

    0% 20% 40% 60% 80% 100%

    Continental

    Europe

    (n=59)

    Average

    (n=322)

    Extremely orVery Important

    Survey based on 322 institutional investors in 2006(ISS Global Institutional Investor Study)

  • 8/8/2019 Mertens Seminar 28 Maart 2007[1]

    7/16

    Royal Dutch Shell - Reserve scandal, accountability and unification

    VNU - Buying IMS Health and selling to private equity

    CSM - Fat balance sheet, new strategy and new CEO

    Euronext - Strategic options and the European identity

    Stork - Public to private and focus on Aerospace

    ABN AMRO - Buying 1% and writing a letter

    Examples of shareholder Activism

  • 8/8/2019 Mertens Seminar 28 Maart 2007[1]

    8/16

  • 8/8/2019 Mertens Seminar 28 Maart 2007[1]

    9/16

  • 8/8/2019 Mertens Seminar 28 Maart 2007[1]

    10/16

    Theory on corporate governance tells us:

    Shareholder activism is a means of corporate governance in the

    pursuit ofshareholder wealth maximization

    The utility of shareholder activism as an instrument of corporategovernance is largely conditioned by:

    the degree to which shareholdings are dispersed,

    informational and legal barriers that stand in the way of exercisingshareholder voice,

    the level of inside ownership in the target firm, ownership concentration,

    the degree of institutional ownership,

    the absolute size of the equity holding in the target firm

    Is shareholder activism therefore an ultimum remedium that shouldbe put to use only after making a thorough cost-benefit analysis?

  • 8/8/2019 Mertens Seminar 28 Maart 2007[1]

    11/16

    Focus of Empirical Research

    The relation between shareholder activism and performance

    Mostly about shareholder activism in the United States.

    Results are mixed:

    some studies find positive effects of shareholder activismon targeted firms,

    for instance Becht et al. (2006) show that engagement

    yields abnormal positive return,

    others conclude that shareholder activism has a negligibleimpact on target firm performance

  • 8/8/2019 Mertens Seminar 28 Maart 2007[1]

    12/16

    Other theories ?

    Theory building not directly related to shareholderactivism may also be interesting

    So-called institutional explanations of organizationalstructures and policies appear to be empirically powerfulin corporate governance research

    The ceremonial dimension of shareholder activism

  • 8/8/2019 Mertens Seminar 28 Maart 2007[1]

    13/16

    Empirical results of our survey

    1. There may be an important ceremonial dimension toshareholder activism

    Share lending practices:

    62% lend shares, yet no one retains shares, while onlyfew give voting instructions

    2. The real importance to investors of shareholderactivities: how many resources are spent?

    Consistent with other research, these are found to be

    smallaround 100.000and spent predominantly ondomestic investments

  • 8/8/2019 Mertens Seminar 28 Maart 2007[1]

    14/16

    Empirical Results of our survey

    3. Corporate governance issues are reported to be the most

    important trigger for shareholder activities

    4. For these shareholdings, proxy voting is about the onlyactivity institutional shareholders engage in

    5. Dominant role of ISS leads to uniform company reports and

    voting recommendations. This increases the risk of developing

    largely ceremonial shareholder policies and activities

  • 8/8/2019 Mertens Seminar 28 Maart 2007[1]

    15/16

    Empirical results of our survey

    6. Home bias: Investors are generally more active in their home

    countries than in the foreign countries in which they invest

    7. Virtually no investor spends resources on measuring the

    costs and benefits of their shareholder activities

    8. Dutch pension funds reported to be driven mostly bysymbolic and ceremonial dimension of shareholder activities,

    while the international pension funds reported to bemotivated predominantly by the considerations that underlie

    a rational cost-benefit analysis

  • 8/8/2019 Mertens Seminar 28 Maart 2007[1]

    16/16