Advising the Management: A Theory of Shareholder Engagement

58 Pages Posted: 25 Aug 2018 Last revised: 22 Nov 2021

See all articles by Ali Kakhbod

Ali Kakhbod

Rice University; Jones GSB, Finance department

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)

Date Written: November 21, 2021

Abstract

We provide a model to study the effectiveness of shareholder engagement, i.e., shareholders communicating their views to management. Differences in preferences and beliefs between management and shareholders prevent effective engagement, and these frictions can be exacerbated by the firm's ownership structure if many investors choose not to become shareholders. The growth in passive ownership can counteract these effects and improve shareholder engagement. Engagement decisions of shareholders are complements under differences in beliefs, but are substitutes if the manager's and shareholders' preferences are strongly misaligned. If differences in beliefs are substantial, some degree of preference misalignment can improve shareholder engagement.

Keywords: shareholder engagement, communication, advice, managerial learning, cheap talk, heterogeneous beliefs, 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 (November 21, 2021). Available at SSRN: https://ssrn.com/abstract=3231365 or http://dx.doi.org/10.2139/ssrn.3231365

Ali Kakhbod

Rice University ( email )

6100 South Main Street
Houston, TX 77005-1892
United States

Jones GSB, Finance department ( email )

6100 South Main Street
Houston, TX 77005-1892
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

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
306
Abstract Views
3,097
rank
129,277
PlumX Metrics