Meeting criteria – Why a company’s choice of AGM location could be a possible ‘sell’ signal
Academics can grow very excited about findings that are ‘statistically significant’. Without wishing to become too bogged down in the maths, however, we would respectfully suggest that, just because something is significant in a statistical context, it does not necessarily follow it is impactful or indeed useful in the real world.
It is therefore pleasing when we come across any academic study that contain findings that are both statistically significant and impactful – and doubly so when these have investment implications. This brings us to an interesting paper by two US business school professors, Yuanzhi Li and David Yermack, which goes by the intriguing title Evasive shareholder meetings.
The pair analysed the locations of nearly 10,000 annual general meetings (AGMs) filed by US companies with the Securities and Exchange Commission between 2006 and 2010. They found that 87% of AGMs are held within 50 miles of company headquarters while 84% of AGMs return to the same venue that was used the year before.
So far, so unsurprising, as is the finding that some companies use different locations from year to year – usually businesses with multi-national interests, such as General Electric, which used 18 different locations in the space of 21 years. What really interested Li and Yermack, however, was what might cause AGMs to be held in anomalously remote locations.
Their data allowed them to identify a subset of AGMs held more than 50 miles from both a company’s headquarters and a major airport. What might be behind the thinking of such companies, including the auto-parts manufacturer that interrupted a string of AGMs in New York to hold one on the Mexican border, 1,400 miles from its Detroit HQ and more than 300 miles from the nearest major airport?
Li and Yermack suggest companies do not take such an extraordinary course of action because of any recent bad news or ongoing controversy about which they wish to avoid awkward questions. Instead, their paper argues, it is often because a company has hitherto undisclosed information about the performance of its business that it would prefer remained hidden for a while, if not a lot, longer.
Furthermore, as we implied at the start, the paper offers some unusually striking numbers to back up its ideas, revealing that, for the 340 firms that hold “remote meetings” – that is, at least 50 miles from headquarters and at least 50 miles from a major airport – the average abnormal stock performance is -6.8%.over the next six months.
As for the 46 firms that hold “exceptional meetings” – that is, moving at least 150 miles away from headquarters only once in a five-year cycle – these are followed by average abnormal stock returns of -11.7% over the next six months. And that Detroit auto-parts manufacturer? Its share price fell 33% over the next six months – a period in which the S&P 500 index feel just 2%.
“When managers announce a distant location for an upcoming shareholder meeting, they must often have undisclosed information suggesting poor future performance,” conclude Li and Yermack. “Moving the meeting may be part of a strategy to reduce attendance or forestall questioning from audience members.” Thanks to their paper, the announcement of a one-off distant location for an AGM, should now in itself be enough to provoke some questions.
Fund Manager, Equity Value
I joined Schroders European equity research team in 2007 as an analyst specialising in automobiles. After two years I added the insurance sector to my coverage. In early 2010 I moved into a fund management role, and then took over management of two offshore funds investing in European and Global companies seeking to offer income and capital growth.
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