NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Evasive Shareholder Meetings

firms that held a shareholder meeting at least 50 miles from their headquarters and at least 50 miles from a major airport [experienced an] abnormal six-month return [of] ... -6.8 percent.

When a company moves its shareholder meeting to a remote location, it is often associated with bad news, according to Evasive Shareholder Meetings (NBER Working Paper No. 19991) by Yuanzhi Li and David Yermack. The study finds that "companies are more likely to announce unfavorable quarterly earnings in the aftermath of long-distance meetings, and these firms' stock prices significantly underperform market benchmarks over the six months following the meeting date." After examining nearly 10,000 annual meetings held between 2006 and 2010, the authors find that a company that holds a shareholder meeting 1,000 miles away from its corporate headquarters has an average abnormal cumulative return of -3.7 percent on its stock during the ensuing six months.

The authors also find other location decisions that foretell negative results. If a company holds its shareholder meeting far from a major airport, it also experiences an average stock price decline in the subsequent six months. This effect is about half as large as the distance-from-headquarters impact. During the 2006-10 period, for the 340 firms that held a shareholder meeting at least 50 miles from their headquarters and at least 50 miles from a major airport, the abnormal six-month return was much worse: -6.8 percent. For the 46 companies that held an annual meeting at least 150 miles from headquarters only once in the sample period, and that met near their headquarters in the other four years, the abnormal return was -11.7 percent.

The adverse effect of holding distant meetings does not arise when companies have already reported bad results or are expecting shareholder confrontation over an issue. The authors find that companies are more likely to stay close to home in the face of expected public protests, perhaps because they feel they can better handle security, access, and work with local law enforcement on their own turf. "We find that managers schedule long-distance meetings when the firm is experiencing adverse operating performance that is not already known to the market," the authors write. "Moving the meeting may be part of a strategy to reduce attendance or forestall questioning from audience members, so that the chance is reduced for questions or confrontations that might force the managers to reveal what they know."

Investors do not seem to have recognized the importance of changes in shareholder meeting locations. The researchers find no evidence of significant stock-market reaction around company announcements of shareholder meeting locations. They also find little unusual stock activity around the meetings themselves. The negative stock reaction comes instead after the subsequent earnings report. Li and Yermack conclude that "the market up to now has not internalized any such motivation of the managers; if their reasons for choosing a distant meeting location were transparent, then stock prices should fall sharply when these meeting locations are announced rather than gradually declining over a period of months after the meeting."

-- Laurent Belsie

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