Management Department


Date of this Version



Published in Strategic Management Journal, 33:12 (2012), pp. 1431-1451.
doi: 10.1002/smj.1989


Copyright © 2012 John Wiley & Sons, Ltd. Used by permission.


Corporate governance research indicates that corporate boards of directors may be overly beholden to management, which can be detrimental to firm value creation. Drawing upon agency theory and the governance law literature, we examine the effects of a new SEC rule designed to lessen managerial power by increasing large, long-term shareholders’ influence in the director nomination process. We predict and find support for a positive overall market reaction to the rule’s announcement as well as a greater reaction for firms with characteristics that suggest compromised board independence or greater CEO control. Moreover, we examine the implications of greater shareholder voice for another key stakeholder group, firm bondholders, and find evidence that it is also value increasing. We conclude by discussing important implications for theory and practice.