Study: Remote shareholder meetings mean bad news

When a company moves its shareholder meeting to a very remote location, that usually means the company is trying to hide bad financial news, according to a study reported in “The NBER Digest.”

Companies that held a shareholder meeting at least 50 miles from their headquarters and at least 50 miles from a major airport experienced an abnormal six-month return of [negative] -6.8 percent, the study found.

“We find that managers schedule long-distance meetings when the firm is experiencing adverse operating performance that is not already known to the market,” the authors said. “Moving the meeting may be part of a strategy to reduce attendance or forestall questioning from audience members, so that the chance is reduced for questions or confrontations that might force the managers to reveal what they know.”

The working paper, “Evasive Shareholder Meetings” by Yuanzhi Li and David Yermack, was summarized in the July 2014 issue of the National Bureau of Economic Research (NBER) newsletter.

The study finds that “companies are more likely to announce unfavorable quarterly earnings in the aftermath of long-distance meetings, and these firms’ stock prices significantly under-perform market benchmarks over the six months following the meeting date.”

After examining nearly 10,000 annual meetings held between 2006 and 2010, the authors found that a company that holds a shareholder meeting 1,000 miles away from its corporate headquarters has an average abnormal cumulative return of [negative] -3.7 percent on its stock during the ensuing six months.

The adverse effect of holding distant meetings does not occur when companies have already reported bad results or are expecting shareholder protests that might require greater security measures, the authors said.

Originally written in 2014.

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