Battles for Control: An Overview of Proxy Contests

This paper reviews the theoretical and empirical contributions to the proxy contest literature. The theoretical work, to date, suggests that (1) the use of the proxy contest as a method of taking over a corporation depends on its cost relative to the tender offer; (2) the security voting structure and the debt/equity ratio influence the outcome of the proxy contest; and, (3) the value of a proxy contest can be estimated using the principles of option pricing theory. A review of empirical research indicates that (1) firms which are inefficiently managed are more likely to become the target of a proxy fight; (2) wealth gains accrue to shareholders of contested firms during the contest period; and, (3) incumbent management is more likely to succeed in a proxy fight but not necessarily ‘win’.