Majority of the Minority Approval of Related Party Transactions: the Analysis of Institutional Shareholder Voting

Majority of the minority (MOM) approval of related party transactions (RPTs) has become a popular mechanism to be used in the oversight of RPTs among academics, stakeholders and regulators. Using this mechanism means that for companies, entering into RPTs are subject to the approval of a certain majority of the disinterested shareholders. This article examines the effectiveness of MOM approval as a mechanism to oversee RPTs, i. e. whether it would prevent value-decreasing RPTs while allowing value-increasing ones, by analysing institutional shareholder voting in this context within the US and European legal framework. Specifically, it examines whether institutional shareholders who dominate the shareholding across the world have sufficient incentives to cast informed votes in MOM votes on RPTs and the role of proxy advisors in this regard. Taking account of the relevant theoretical claims and empirical evidence, it provides further policy recommendations to improve the efficacy of MOM approval.

Auditor Tenure Disclosure and Shareholder Ratification Voting

The PCAOB mandated, over the objections of the large audit firms and others, that for fiscal years ending on or after December 15, 2017, the audit report shall include information about auditor tenure. In this paper we answer the call for academic research about “the impact and usefulness of the auditor tenure disclosure as it becomes implemented” from Franzel (2017). We use data from 2,718 firms in our analyses. We find that in the case of clients with long (short) auditor tenure, the proportion of shareholder votes not ratifying the auditor increased (decreased) after public disclosure of auditor tenure. Thus, it appears that public disclosure of auditor tenure influenced shareholder voting and sensitized shareholders to longer audit tenures.

Voting in corporations

I introduce a model of shareholder voting. I describe and provide characterizations of three families of shareholder voting rules: ratio rules, difference rules, and share majority rules. The characterizations rely on two key axioms: merger consistency, which requires consistency in voting outcomes following stock‐for‐stock mergers, and reallocation invariance, which requires the shareholder voting rule to be immune to certain manipulative techniques used by shareholders to hide their ownership. The paper also extends May's theorem.