Free-Riders and Underdogs: Participation in Corporate Voting
112 Pages Posted: 24 Mar 2017 Last revised: 3 Apr 2019
Date Written: January 2019
Voting outcomes can differ from underlying preferences due to strategic selection into voting. We discuss one explanation for such selection effects: lower participation of shareholders with popular preferences (free-rider effect) relative to those with unpopular preferences (underdog effect). We develop a rational choice model where the voting participation decision depends on the probability of being pivotal and the costs and benefits of voting. Our model yields an algorithm that uncovers unobserved shareholder preferences. Empirically, we find that strategic selection into voting is relevant: the realized support for a proposal on average differs by 21% from its popularity in the shareholder base.
Keywords: voting participation; corporate governance, shareholder proposals, shareholder preferences, heterogeneity of ownership, institutional ownership
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