THE SYMBOLIC MANAGEMENT OF STOCKHOLDERS - CORPORATE GOVERNANCE REFORMS AND SHAREHOLDER REACTIONS

This paper examines the consequences of symbolic action in corporate g overnance. Specifically, we examine (1) whether the stock market react s favorably to specific governance mechanisms that convey the alignmen t of CEO and shareholder interests, such as the adoption of long-term incentive plans (LTIPs), even if such plans are not actually implement ed, (2) whether providing agency-related explanations for LTIPs affect s the stock market response, and (3) whether the symbolic adoption of LTIPs deters other governance reforms that would reduce CEOs' control over their boards. Analysis of data from over 400 corporations over a ten-year period suggests that symbolic corporate actions can engender significant positive stockholder reactions and deter other, more subst antive governance reforms, thus perpetuating power imbalances in organ izations. We discuss implications for institutional and agency-based p erspectives on organizations.