Advising the Management: A Theory of Shareholder Engagement

52 Pages Posted: 25 Aug 2018 Last revised: 28 Nov 2022

See all articles by Ali Kakhbod

Ali Kakhbod

University of California, Berkeley

Uliana Loginova

Columbia University - Graduate School of Arts and Sciences

Andrey Malenko

University of Michigan, Stephen M. Ross School of Business; Centre for Economic Policy Research (CEPR)

Nadya Malenko

University of Michigan, Stephen M. Ross School of Business; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: August 20, 2022

Abstract

We study the effectiveness of shareholder engagement, that is, shareholders communicating their views to management. When shareholders and management have different beliefs, each shareholder engages more effectively when other shareholders engage as well. A limited shareholder base can thus prevent effective engagement. However, a limited shareholder base naturally arises under heterogeneous beliefs because investors who most disagree with management do not become shareholders. Passive funds, which own the firm regardless of their beliefs, can counteract these effects and improve engagement. When shareholders' and management's preferences are strongly misaligned, shareholders' engagement decisions become substitutes and the role of ownership structure declines.

Keywords: shareholder engagement, communication, advice, managerial learning, cheap talk, heterogeneous beliefs, ownership structure, passive funds, advisory voting

JEL Classification: D71, D74, D82, D83, G34

Suggested Citation

Kakhbod, Ali and Loginova, Uliana and Malenko, Andrey and Malenko, Nadya, Advising the Management: A Theory of Shareholder Engagement (August 20, 2022). Review of Financial Studies, Forthcoming, European Corporate Governance Institute – Finance Working Paper No. 829/2022, Available at SSRN: https://ssrn.com/abstract=3231365 or http://dx.doi.org/10.2139/ssrn.3231365

Ali Kakhbod

University of California, Berkeley ( email )

Haas School of Business
2220 Piedmont Ave
Berkeley, CA 94720
United States

Uliana Loginova

Columbia University - Graduate School of Arts and Sciences ( email )

New York, NY 10027
United States

Andrey Malenko

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Nadya Malenko (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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