Free-Riders and Underdogs: Participation in Corporate Voting

77 Pages Posted: 24 Mar 2017 Last revised: 14 Jan 2020

See all articles by Konstantinos E. Zachariadis

Konstantinos E. Zachariadis

School of Economics and Finance, Queen Mary University of London

Dragana Cvijanovic

Warwick Business School, University of Warwick

Moqi Groen-Xu

London School of Economics & Political Science (LSE)

Date Written: December 20, 2019

Abstract

Voting outcomes can differ from underlying preferences due to strategic selection into voting. One explanation for such selection effects is lower participation of shareholders with popular preferences (free-rider effect) relative to those with unpopular preferences (underdog effect). We illustrate these 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. Using US data, we show that strategic selection into voting is relevant: 13% of voting outcomes in governance shareholder proposals represent only the minority.

Keywords: voting participation; corporate governance; shareholder proposals; institutional ownership; structural estimation; counterfactuals

Suggested Citation

Zachariadis, Konstantinos E. and Cvijanovic, Dragana and Groen-Xu, Moqi, Free-Riders and Underdogs: Participation in Corporate Voting (December 20, 2019). 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

Warwick Business School, University of Warwick ( email )

Coventry CV4 7AL
United Kingdom

Moqi Groen-Xu

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

Houghton Street
London, WC2A 2AE
United Kingdom

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