Snapchat's Gift: Equity Culture in High-Tech Firms
38 Pages Posted: 22 Jun 2018 Last revised: 27 Nov 2018
Date Written: June 20, 2018
Snap, the company that owns the platform Snapchat, recently and controversially offered non-voting common shares to the public. This article asks what it means to invest in Snap or other (mostly technology-based) companies in which common shareholders collectively have little or no power to influence corporate policy. In particular, why do such investors expect to be compensated? This article explores the familiar rationales for equity investing, including stock appreciation and dividends, and the logical shortcomings of those rationales in these circumstances. Adopting Henry Manne's "two systems" of corporate affairs, law and economics, we show that corporate law fails to ensure that corporations return business profits to shareholders. A similar analysis of the market for corporate control, concludes (with Manne) that the market for corporate control depends upon shareholder voting.
In expecting a return on investment even in the absence of legal or market mechanisms to secure such return, shareholders are not irrational. Instead, investors rely on cultural understandings of appropriate reciprocity. Marcel Mauss' path-breaking essay, The Gift, helps to explain the equity culture in which shareholders invest in Snap and other high-technology firms, and in which such firms operate. The article concludes by suggesting some ramifications of understanding shareholding, and consequently management, in terms of equity culture rather than the rational self-interest of the individual.
The article complements the substantial work of behavioral economics in explaining investor choice and organizational behaviors. The field of corporate finance traditionally has been organized around the figure of the rationally self-interested individual. Behavioral economics argues that people are not all that rational. This article argues that people in markets are not as individual as orthodox corporate finance maintains.
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