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Free-Riders and Underdogs: Participation in Corporate Voting

57 Pages Posted: 24 Mar 2017 Last revised: 28 May 2017

Dragana Cvijanovic

University of North Carolina Kenan-Flagler Business School

Moqi Groen-Xu

London School of Economics & Political Science (LSE)

Konstantinos E. Zachariadis

School of Economics and Finance, Queen Mary University of London

Date Written: May 26, 2017

Abstract

How do shareholders decide whether to vote? We propose a rational choice model where the participation decision depends on the probability of being pivotal and the costs and benefits of voting. We show that more homogeneity in ex-ante preferences among shareholders yields lower participation rates (free-rider effect), while higher disagreement yields higher participation rates (underdog effect). The model admits a closed-form solution for the equilibrium participation rates. This allows us to calculate hitherto unobserved statistics on the turnout by supporters of either side, as well as, the perceived importance of proposals, isolated from other variables that affect the probability of being pivotal such as the ownership structure. We document a number of novel stylized facts: shareholder proposals are perceived as more important than management proposals and the most important shareholder proposals are about restructuring.

Keywords: voting participation; corporate governance, shareholder proposals, shareholder preferences, heterogeneity of ownership, institutional ownership

Suggested Citation

Cvijanovic, Dragana and Groen-Xu, Moqi and Zachariadis, Konstantinos E., Free-Riders and Underdogs: Participation in Corporate Voting (May 26, 2017). Available at SSRN: https://ssrn.com/abstract=2939744

Dragana Cvijanovic

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

Moqi Groen-Xu

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Konstantinos E. Zachariadis (Contact Author)

School of Economics and Finance, Queen Mary University of London ( email )

Graduate Centre
Mile End Campus
London, E1 4NS
United Kingdom
+44 20 7882 8698 (Phone)

HOME PAGE: http://www.konstantinosezachariadis.com

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