Shareholders’ nomination boards: do abnormal returns exist around the holdings revision date?
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School of Business |
Master's thesis
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Date
2017
Department
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Mcode
Degree programme
Finance
Language
en
Pages
59
Series
Abstract
Purpose of the study While corporate governance has received lots of attention in the academic economics and finance literature, board of directors’ committees (excluding audit committee) have not drawn the public eye. Even though, board member election is one of the most crucial ways for shareholders to affect how the company is managed, just a handful of studies have been conducted about the different methods of preparing and electing the directors. Since these ways vary from country to country it is no surprise that shareholders’ nomination boards, which are mainly used just in Scandinavia, have remained in the darkest shadows of academic literature. In 2015, the Finnish Corporate Governance Code was updated to include shareholders’ nomination boards as an equal alternative to the more common, within board nomination committees. After the inclusion, many companies have adopted shareholders’ nomination boards and at the end of 2016 already 41 listed firms used it in Helsinki stock exchange. Therefore, it is about the time to shed some academic light to shareholders’ nomination boards. Data and methodology A unique dataset is hand collected to study shareholders’ nomination boards and their development in Finland. Main data sources are company annual and corporate governance reports. After a thorough descriptive analysis, two different methods are used to examine nomination boards. First, Poisson and negative binomial regression models are constructed to study whether changes in nomination boards’ nominators have an effect on the subsequent board member turnover. Then, an event study methodology is used to figure out evidences whether the ‘hit-and-run’ philosophy is in use in Finland. In ‘hit-and-run’ philosophy an investor buys large block of shares just before the holdings revision date to secure a seat in the shareholders’ nomination board. After that, she promotes new board member candidates that drive short-term value adding methods such as share repurchase plans or higher dividends. When the effect of the artificial short-term value creation is realized in the company stock, the agent collects the profit and moves on to next target. Key findings The thesis is the first detailed documentation of the shareholders’ nomination boards in Finland. Firms that use nomination board are very different in size and come from various industries but have on average highly concentrated ownership among the largest owners. Similarly, the nomination authority is concentrated to the hands of few, mainly to government and large pension funds. In addition, changes in nominators have a statistically significant and positive effect on the following board member turnover. Finally, there exist no indication that ‘hit-and-run’ philosophy would be used in Finland.Description
Thesis advisor
Puttonen, VesaKeywords
shareholders’ nomination board, corporate governance, nomination committee, board of directors, board member turnover, event study, abnormal returns