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Distant Shareholder Meetings Signal Trouble

David Yermack_article

We find a strong negative performance pattern in the aftermath of meetings scheduled far from company headquarters.

Confirming what many business journalists and shareholder activists have long suspected, new research by NYU Finance Professor David Yermack confirms that public companies appear to schedule their annual shareholder meetings in remote locations when they have bad news to announce.

In “Evasive Shareholder Meetings,” Yermack and co-author Yuanzhi Li, assistant professor of finance at Temple University, ran the numbers on nearly 10,000 annual meetings between 2006 and 2010. They found “a systematic pattern of poor company performance in the aftermath of meetings that are held a great distance away from headquarters.”

Such strategic scheduling did not appear motivated by a desire to escape theatrical protests by corporate gadflies or angry shareholders, the authors said, because companies may feel that handling potential disruption would be easier closer to home base, where they are comfortable with their own security and local law enforcement.

Rather, when companies have news they would like to muffle, they hope that moving the meeting to an inaccessible location will help them evade prying questions from the hostile shareholders and financial journalists who follow them closely. One Detroit-based corporation held its annual meeting in the southernmost tip of the US, a Texas location that was 300 miles from the nearest major airport.

The authors demonstrated that stock prices for companies that undertook such evasive venue maneuvers to announce bad news significantly underperformed market benchmarks in the six months following the meeting date. “We find a strong negative performance pattern in the aftermath of meetings scheduled far from company headquarters,” says Yermack. What’s really baffling, the authors say, is why shareholders “fail to decode such an unambiguous signal” as soon as the meeting location is announced.

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