Empirical evidence of the impact of securities regulation on the financial markets

This dissertation is composed of three chapters that examine the impact of securities regulation on the financial markets. The first chapter tests three hypotheses on factors that drive the vote outcome in institution-sponsored proxy issue contests dealing with corporate governance proposals using a sample of 362 shareholder-sponsored issue contests from 1991 to 1995. First, the effect of signals on the value of a proposal is tested. In particular, shareholders use the text of the proposal, the sponsor identity, and measures of the proxy company's corporate governance structure to determine the value of the proposal. Second, the significance of institutional investor vote holdings is tested. Finally, the chapter tests the importance of institutional investors with some relationship ties with either the proxy company or the proxy company's management or board of directors. The second chapter tests three hypotheses on the impact of the 1992 SEC proxy reforms that enhanced the ability of shareholders to communicate with one another during a proxy contest. First, the impact of the reforms on the effectiveness of proxy issue contests involving a corporate governance proposal is tested. The chapter finds that proposals with similar characteristics pre-and post-reform receive a greater for-vote percentage post-reform. Moreover, the increase is greatest for those proposals targeting companies with worse corporate governance structures and where institutional investors with sizable share holdings are present. Second, the chapter tests the indirect effect of the reforms on the composition of sponsors. Finally, the chapter tests the hypothesis that sponsors post-reform tend to target companies with worse corporate governance structures. The third chapter tests enforcement against strike suit theories of securities fraud class actions in the initial public offering context. Looking at the entire set of equity IPOs from 1975 to 1986 (3519 IPOs), the chapter analyzes the IPO offering structure, the issuer's board of director composition, the shareholders' decision to file a securities class action suit, the market response to the filing of such a suit, and the relation of the settlement amount to the potential damage award of those IPOs that experienced a securities fraud class action.