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The Legitimate Rights of Public Shareholders

Lawrence E. Mitchell

affiliation not provided to SSRN

March 2, 2009

GWU Legal Studies Research Paper No. 461
GWU Law School Public Law Research Paper No. 461

In recent years there has been significant ongoing academic debate over the expansion of public shareholders' participation rights in corporate governance. The debate has accompanied a dramatic increase in institutional shareholder and hedge fund activism attempting to influence the conduct of corporate affairs.

The legitimacy of shareholder participation rights depends upon the actual role public shareholders play in contributing to the corporation's function of providing goods and services and, ultimately, to economic growth and social welfare. Nobody in the debate has stopped to examine this question. This paper presents original empirical evidence that demonstrates that public shareholders do not, on net, contribute capital to finance industrial production, and in fact are net consumers of corporate equity. Moreover, their investment incentives significantly distort the behavior of corporate managers who place strong emphasis on stock price at the expense of long-term business health, a fact that has played some role in the current global financial debacle. The logical conclusion is that public shareholders' rights should, ideally, be eliminated, and certainly not expanded or enhanced.

Number of Pages in PDF File: 38

Keywords: shareholders, voting, shareholder rights, corporate governance, finance, stock market, finance-growth nexus, stock, shares

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Date posted: March 3, 2009  

Suggested Citation

Mitchell, Lawrence E., The Legitimate Rights of Public Shareholders (March 2, 2009). GWU Legal Studies Research Paper No. 461; GWU Law School Public Law Research Paper No. 461. Available at SSRN: http://ssrn.com/abstract=1352025 or http://dx.doi.org/10.2139/ssrn.1352025

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