Rob Swystun, Pristine Advisers
If you’re an investor, you should pay particular attention to where annual shareholder meetings are taking place. Because if it’s being held somewhere remote, the company may just have some unpleasant news to share. (If it’s being held in Alaska, that probably means the company is about to announce it’s impending bankruptcy.)
A new study has revealed that the more remote the location for an annual shareholders meeting, the more likely it is that a company is going to share bad news and under-perform, the Washington Post’s Jena McGregor reports.
The report, “Evasive Shareholder Meetings”, authored by researchers at Temple University and New York University, found that companies that hold their shareholder meetings far away from their corporate headquarters are more likely to announce disappointing earnings results within the next three months. And, in the six months following the meeting, their stock tends to under-perform.
Moving the meeting to a far away location may be a strategic move to limit the number of investors, analysts and media who attend.
“Companies are fairly intentional about meeting far away from home when they have bad news,” says NYU professor David Yermack, who co-authored the study.
How they did it
Researchers looked at the locations of 2,342 public companies’ annual meetings between 2006 and 2010. This accounted for 9,616 annual meetings in total. They found that 71% of the time, companies held these meetings within five miles of their respective headquarters, while 16% of the meetings were held between five and 50 miles of their headquarters. This, of course, makes it easier for senior management and board members, who usually live nearby, to get to the meetings, plus investors, who often live nearby.
One of the most bizarre locations for meetings that McGregor mentions was TRW Automotive Holdings. This company is based outside of Detroit, but held its 2007 meeting in McAllen, TX, which is the southern-most tip of the United States (consider that as your geography lesson for the day).
Making the meeting inaccessible can involve more than just an odd location. A Milwaukee-based machinery company held its 2007 meeting at the yawn-inducing time of 8 a.m. … on the day after Martin Luther King, Jr. Day … in Napa, CA.
“We even found one meeting that was held in Siberia,” Yermack says. (Well, geez. That kinda undermines that Alaska joke.) The Siberian meeting was not included in his sample due to the company’s size.
Starting with the hypothesis that companies would seek to move their meetings to remote locales if they were expecting disruptions by protestors or potentially bothersome activist investors in attendance, collaborators Yermack and Yuanzhi Li of Temple University found the exact opposite was true: companies that expected a hard time from protesters and activist investors actually met close to their headquarters.
The pair explain that this is likely because controversial agenda items or opposition from activist investors is already public knowledge and thus the companies are more prepared to deal with the bad publicity and they choose to stay close to home to take advantage of the resources there, like the local police presence for added security at meetings.
“It’s a lot harder to get police to cooperate with you if you’re a stranger from out of town than if you’re a big local employer,” Yermack says. “When they’re trying to hide information, that’s when they go far afield.”
It’s when Yermack and Li looked at meetings that they considered to be remote that they saw a pattern.
But just how remote is remote? Remote meetings were the ones that took place more than an hour away from the company’s headquarters and more than an hour away from an airport. And then there were “exceptional” meetings: remote meetings by companies that usually held them close to home.
There was a total of 340 of these remote meetings in the researchers’ sample and the group of companies who held these meetings saw their stock prices under-perform their market benchmarks by almost 7% on average. There were also 46 “exceptional” meetings and after these meetings, the average market under-performance was nearly 12%.
“That’s an extremely negative result to be generated as an average,” Yermack says.
Another seemingly obvious explanation for remote meetings might just be that executives want to get away from the often grey, dreary April weather where they are and get out to a nice, sunny locale.
However, as the researchers write in the paper, their findings include “only a smattering of meetings in cities such as Las Vegas, New Orleans, and Honolulu, and the large majority of these are convened by companies with local headquarters.”
Not every shareholder meeting that takes place in a remote location precedes bad news. Some companies choose new locations for their annual meetings every year, or hold them near regional offices to make it easier for board members to visit those operations.
But remote meetings preceding bad news happens with such frequency, that Yermack says he’s surprised investors don’t act on it more.
“The thing that really strikes me after doing this study is how obvious this is, yet the market doesn’t internalize it,” he says. “If the company announces its meeting is in Paducah, Kentucky, people should immediately be suspicious.”