Shareholder Empowerment and Board of Directors Effectiveness

46 Pages Posted: 7 Jul 2014 Last revised: 25 Nov 2014

See all articles by George Drymiotes

George Drymiotes

Texas Christian University

Haijin Lin

University of Houston

Multiple version iconThere are 2 versions of this paper

Date Written: November 22, 2014


We develop a model to examine implications of empowering shareholders to replace the board of directors. We find that empowerment can benefit shareholders by providing incentive for boards to act in the best interests of the shareholders. Our results, however, also highlight unintended consequences. On one hand, boards might respond to the threat of replacement by taking action to extend their tenure at the expense of shareholders. On the other hand, empowerment might also lead to the replacement of boards that add value to firms. We find conditions under which empowerment either benefits or harms shareholders. In particular, we find conditions under which empowerment exacerbates the agency problems it is seemingly intended to address. We also discuss empirical implications of our main findings.

Keywords: Board of directors, corporate governance, shareholder empowerment, Rule 14a-11, Rule 14a-8

JEL Classification: D80, G34, M40

Suggested Citation

Drymiotes, George and Lin, Haijin, Shareholder Empowerment and Board of Directors Effectiveness (November 22, 2014). AAA 2015 Management Accounting Section (MAS) Meeting, Available at SSRN: or

George Drymiotes (Contact Author)

Texas Christian University ( email )

M.J. Neeley School of Business
TCU Box 298530
Fort Worth, TX 76129
United States
817 257 5448 (Phone)

Haijin Lin

University of Houston ( email )

390F Melcher Hall
Bauer College of Business
Houston, TX 77204-6021
United States
7137437771 (Phone)

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