Free-Riders and Underdogs: Participation in Corporate Voting

112 Pages Posted: 24 Mar 2017 Last revised: 3 Apr 2019

See all articles by Dragana Cvijanovic

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: January 2019

Abstract

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

Suggested Citation

Cvijanovic, Dragana and Groen-Xu, Moqi and Zachariadis, Konstantinos E., Free-Riders and Underdogs: Participation in Corporate Voting (January 2019). Available at SSRN: https://ssrn.com/abstract=2939744 or http://dx.doi.org/10.2139/ssrn.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

Register to save articles to
your library

Register

Paper statistics

Downloads
369
rank
77,803
Abstract Views
1,593
PlumX Metrics