Effects of Shareholder Proposals on Corporate Governance and Firm Value: Focusing on Strengthening Shareholder Rights Following the Introduction of the Stewardship Code

Abstract

This study examines the impact of shareholder proposals on corporate governance and stock prices. In particular, it verifies the validity of the Stewardship Code, in terms of strengthening shareholder rights, by analyzing the situation before and after its introduction. Using a sample of 474 shareholder proposals submitted in general meetings from 2010 to 2021, we find that corporate governance improves not only in the original grade, but also in the adjusted grade after the shareholder proposals. Improvement in governance structure is evident after the introduction of the Stewardship Code. The amendment to the Articles of Incorporation by the Agenda showed the greatest improvement. By type of voting right, the degree of improvement in governance structure is higher when in favor of, than against, shareholder proposals, and in opposition to management proposals. Additionally, the higher the voting rights ratio, the better the governance rating. For institutional investors, pension funds have the greatest impact on rating improvements. However, shareholder proposals do not significantly affect corporate value. The cumulative abnormal return continued to increase for two days, before and after the voting date, after the introduction of the stewardship code. Accordingly, it is demonstrated that the cumulative abnormal return increases significantly after the introduction of the Stewardship Code, especially when there is a change in the articles of incorporation.