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Corporate governance through the proxy contest: Evidence and implications text Lakonishok, Josef Ikenberry, David Lawrence 2011-05-07T13:27:53Z 2011-05-07T13:27:53Z 10000-01-01 1990 The limited body of empirical research concerning the proxy contest provides little evidence that shareholders have suffered material equity losses. In addition, the inferences derived by prior researchers examine narrow time periods and provide analysis devoid of a long-term perspective of this important corporate control mechanism. In this dissertation, a sample of 97 election contests during the period 1968 to 1987 is formed. Using an equity return methodology advocated by Dimson and Marsh (1986), we find cumulative abnormal returns for all contests to be -34% beginning 60 months and ending 4 months prior to the announcement of the contest. This evidence, supportive of the Manne hypothesis, is attributed to estimation problems using conventional market model methodology. The operating performance of election contest targets is also examined using an intuitively insightful buy-and-hold investment assumption. The inferior performance of contest targets relative to a control sample, formed using firms of similar industry and asset size, is striking and verifies the conclusions derived from equity returns. Conventional financial performance ratios show that contest targets have chronic profitability problems which extend at least five years prior to the announcement of the contest. Performance ratios addressing liquidity, leverage, and asset utilization do not suggest abnormal performance with the exception of firms where dissidents acquire control of the firm. Shareholders appear to incorporate firm performance in casting their proxies. Firms in which management retained all board seats exhibit profitability levels generally preferable to those firms where dissidents acquire control of the board. "Economic theory would suggest that firms engaged in this corporate control mechanism show relative improvement following the contest. In cases where incumbent directors are reelected to all board seats, we find support for a ""kick-in-the-pants"" hypothesis. However, firms in which dissidents acquire seats, particularly majority control of the board, show continued deterioration in operating performance. The two-year period following contest announcement shows persistent decline in cumulative abnormal returns of 30 percent. A strong association exists between the prior quality of the firm and contest outcome. The fact that the market does not forecast this performance suggests an information inefficiency which remains enigmatic." Made available in DSpace on 2011-05-07T13:27:53Z (GMT). No. of bitstreams: 2 license.txt: 4922 bytes, checksum: 910b249b4beec47e7ab768910c8f966f (MD5) 9114277.pdf: 6722739 bytes, checksum: e65faaee511cc8d71936cdad271bba9c (MD5) Previous issue date: 1990 Item marked as restricted to the 'UIUC Users [automated]' Group (id=2) by Howard Ding (hding2@illinois.edu) on 2011-05-07T14:55:06Z Item is restricted indefinitely. Restriction data tranferred 2014-07-01T11:25:39-05:00 Original Data Group with Access UIUC Users [automated] Release Date: none Reason: ETDs are only available to UIUC Users without author permission ETDs are only available to UIUC Users without author permission U of I Only AAI9114277 (UMI)AAI9114277 http://hdl.handle.net/2142/22067 eng Copyright 1990 Ikenberry, David Lawrence Economics, Finance Finance Finance University of Illinois at Urbana-Champaign Dissertation Ph.D.