Can regulation enhancing the shareholder franchise increase firm value?

Prior research concludes that corporate governance regulation reduces shareholder wealth, or at best, has no impact. We explore this conclusion by examining how equity prices react to corporate governance regulation that enhances the shareholder franchise. Specifically, we focus on regulation repealing broker voting in board of director elections. The change permits computation of an approval rate that more accurately reflects shareholder opinion because the contaminating effect of broker-votes is eliminated. As a result, the shareholder franchise is strengthened. Contrary to prior research decrying corporate governance regulation as unnecessary, and possibly, value-reducing, we find that this regulation eliminating broker-voting increases firm value. This effect is stronger for firms with weaker corporate governance ratings, thereby linking equity value cross-sectionally to strengthening the shareholder franchise via regulation.