Free-Riders and Underdogs: Participation in Corporate Voting

107 Pages Posted: 24 Mar 2017 Last revised: 16 Apr 2020

See all articles by Konstantinos E. Zachariadis

Konstantinos E. Zachariadis

School of Economics and Finance, Queen Mary University of London

Dragana Cvijanovic

Cornell SC Johnson College of Business; Warwick Business School, University of Warwick

Moqi Groen-Xu

Queen Mary University of London

Date Written: April 7, 2020

Abstract

Voting outcomes can differ from underlying preferences due to selection into voting. One source of such selection is lower participation of shareholders with popular preferences (free-rider effect) relative to that of those with unpopular preferences (underdog effect). We illustrate these strategic effects in a rational choice model in which the voting participation decision depends on the probability of being pivotal and the costs and benefits of voting. Based on the model, we structurally estimate unobservable shareholder preferences in US data. We show that strategic selection into voting is relevant: 13% of voting outcomes in shareholder governance proposals represent the minority.

Keywords: voting participation; corporate governance; shareholder proposals; shareholder democracy; structural estimation

JEL Classification: D72, G23, G34, G38

Suggested Citation

Zachariadis, Konstantinos E. and Cvijanovic, Dragana and Groen-Xu, Moqi, Free-Riders and Underdogs: Participation in Corporate Voting (April 7, 2020). European Corporate Governance Institute – Finance Working Paper No. 649/2020, Available at SSRN: https://ssrn.com/abstract=2939744 or http://dx.doi.org/10.2139/ssrn.2939744

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

Dragana Cvijanovic

Cornell SC Johnson College of Business ( email )

Ithaca, NY 14850
United States

Warwick Business School, University of Warwick ( email )

Coventry CV4 7AL
United Kingdom

Moqi Groen-Xu

Queen Mary University of London ( email )

Mile End Rd
Mile End Road
London, London E1 4NS
United Kingdom

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