Research

SEC Rule 14a-8 Shareholder Proposals: No-Action Requests, Determinants, and the Role of SEC Staff

Journal of Accounting and Public Policy

Under SEC Rule 14a-8, shareholders can petition management to include a topic for vote on the annual proxy statement. In response, management may request no-action relief from the Securities and Exchange Commission (SEC) staff to exclude unwelcome proposals. Using a sample of 3,040 no-action letters from the SEC between 2008 and 2019, I examine the determinants of the SEC staff’s decision to grant no-action relief. I find that legal characteristics, pressures on the staff, and proposal attributes have a statistically significant association with the SEC’s decision. Beyond these factors, I find evidence individual SEC staff members differ in the likelihood that they grant no-action relief. On average, these staff members appear to add value, as evidenced by a positive market response to their decisions, but this favorable valuation effect is concentrated among relatively more experienced staff.

Media Mentions:

Information Intermediation in Opaque Markets: Evidence from Equity Crowdfunding Analyst Reports (Job Market Paper - recent draft available here)

Equity crowdfunding (ECF) is an emerging and opaque capital market in the U.S., where start-up firms issue unregistered securities primarily to retail investors. I provide the first examination of investor response to analyst reports. I find a one unit increase in recommendation favorableness is associated with a 17-19% increase in daily investment pledges, with stronger effects in the three weeks immediately following the release of a report. This effect equates to a $25,076 increase in pledges, per unit increase in recommendation, over a nine-week period. Additionally, I find recommendations are associated with the occurrence and success of future ECF offerings. 

Media Mentions:

Employee Board Representation and Firm Investment

I examine whether employee board representation (EBR) affects firm investment. On the one hand, employee knowledge may improve the monitoring of and information available to managers when making investment decisions. On the other hand, misalignments between shareholders and employees may result in intentional investment distortions. Using German co-determination laws mandating EBR of firms with over 500 domestic employees, I study if the level of investment and its sensitivity to investment opportunities is affected by EBR. I find EBR decreases the level of firm investment, but does not impact investment sensitivity to opportunities. While I find no evidence to suggest EBR investment reductions are explained by divergent employee-shareholder risk preferences, my results suggest incentive misalignment may influence EBR investment reductions when employees face labor insecurity. These results provide timely feedback to policy makers as they consider legislation mandating EBR in the United States (U.S.).

Investor Processing Costs and Annual Financial Reporting Timeliness in the Municipal Bond Market (w/ Mayew & Zhang)

On July 1, 2020, the Municipal Securities Rulemaking Board (MSRB) enacted a rule change altering the display of information pertaining to the timeliness of annual financial disclosures submitted to the Electronic Municipal Market Access (EMMA) system. The rule change did not alter the information provided to investors regarding annual financial reporting timeliness, but did potentially lower the awareness costs and acquisition costs of timeliness information. We examine the impact of this rule change by estimating the association between secondary market bond yields and financial reporting timeliness in the four month window surrounding the rule change. We find the association between financial reporting timeliness and secondary market bond yields, which we label the timeliness response coefficient (TRC), increased from 1.9 basis points to 2.7 basis points per month. In the cross section, a TRC increase is observed among uninsured bonds but not among insured bonds, consistent with financial reporting timeliness effects existing solely when financial statements are most useful for assessing credit risk. Among uninsured bonds, a TRC increase is only observed for retail investor trades but not for institutional investor trades. Given retail investors are more likely to use EMMA as an information source, this finding is consistent with the rule change lowering processing costs for retail investors with respect to financial reporting timeliness. These findings are useful for assessing the efficacy of regulatory interventions and for improving our understanding of processing costs in capital markets.

A long-run view of the SEC’s regulation of shareholder proposals (w/ Cox & Kubic)

Pearson, N. C., A. Byun McKay with J. Ballanco, H. Hoyd, G. Burke and S. Lamauro. 2010. Emergent Properties: Interdisciplinary Team Teaching in Literature and Biology. Currents in Teaching and Learning 2: (2), 79-88.