Shareholder Voting and Merger Returns

Using a sample of 384 shareholder meetings, we investigate whether shareholder votes on mergers and acquisitions in both target and acquirer firms relate to the announcement day abnormal returns and whether the voting outcome has implications for the short- and long-run merger performance. We find that shareholder voting dissent is negatively related to both abnormal returns upon merger announcement and recommendations by Institutional Shareholder Services (ISS). The former relationship is stronger for target firms and only borderline significant for acquirer firms. Overall, shareholders seem to take both advisor opinions and market beliefs into account when taking their voting decision. We also find that cumulative abnormal returns on the meeting date are strongly positively related to voting dissent. The observed relationship holds only for mergers with a long negotiation period suggesting that in these mergers a higher fraction of residual uncertainty is re-solved upon a "pass" vote. Furthermore, we find that voting dissent is negatively related to long-run abnormal merger performance suggesting a predictive power of merger votes.