Yuanzhi Li
David L. Yermack
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.”
Additionally, if a meeting occurs very early (before 9:00 a.m.) or very late (after 4:00 p.m.), voter turnout falls by 2% to 3%. No such result seems to apply to firms with higher institutional ownership. We also find lower turnout when the distance from headquarters to the meeting is large or institutional ownership is lower.
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.”
How remote is remote? The authors gave examples (The evasive shareholder meeting man oeuvre):
As an example of a meeting held at a remote location, TRW Automotive Holdings, an auto parts manufacturer with a market capitalization of about $4 billion, convened its May 14, 2007, annual meeting at the Renaissance Casa de Palmas Hotel in McAllen TX, at the Southern tip of the continental United States near the Mexican border. The meeting took place almost 1,400 miles from the company’s headquarters outside Detroit, and more than 300 miles from the nearest major airport, Houston….
One company, General Cable Corp., has a Kentucky headquarters but held its annual meetings in Spain, Costa Rica, and Germany at different times during our sample period.
Foxhole Chickens
Foxhole Award Winner 2013 for Avoiding Shareholders
Take Action on Evasive Shareholder Meetings
Other shareowners may not have recognized this anamoly but we at CorpGov.net are in the midst of our second Foxhole of the Year Award for the company that makes it the most difficult for shareowners turn up at their annual meeting. Last year’s winner was Peabody Energy for their choice of Gillette, Wyoming, a town with less than 30,000 residents.
On nominee for this year is Chevron (CVX), which met in the isolated town of Midland, halfway between Ft.Worth and El Paso, a five-hour drive from the nearest metropolitan area.
Contest rules rules for the Foxhole of the year award are simple. E-mail your nominations to James McRitchie (click on name) by September 15th, including the word foxhole in the subject line. I prefer that you also include the invitation language directly from the proxy and your reasons as to why your nominee should be declared the winner. I’ll decide the winner and probably a runner-up and will send an appropriate email, certificate or some garbage from my waste can to the winning company’s CEO. Of course, I’ll also announce the winner and runner-up here with some fanfare.
I will also entertain awarding the best annual meeting. I understand Johnson and Johnson (JNJ) was easy to get to, convenient time/date, food, comfort, Q&A, headsets for hearing impaired, webcast, podcast, etc. Let’s hear from readers.
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