The Costs and Benefits of Shareholder Democracy

55 Pages Posted: 18 Oct 2018 Last revised: 2 Dec 2018

See all articles by Nickolay Gantchev

Nickolay Gantchev

Southern Methodist University (SMU) - Finance Department; European Corporate Governance Institute (ECGI)

Mariassunta Giannetti

Stockholm School of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swedish House of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: December 1, 2018

Abstract

We show that while low-cost shareholder activism via shareholder-sponsored proposals is occasionally value-enhancing, many proposals are submitted by the same few individual investors and other sponsors without organizational capabilities to analyze a large number of firms. These proposals if approved and subsequently implemented appear to destroy shareholder value. We show that firms whose shareholders are more likely to collect information before voting benefit from low-cost shareholder activism because these investors weed out low-quality proposals. We conclude that an informed shareholder base is crucial for firms to take advantage of low-cost shareholder activism.

Keywords: Shareholder activism; Shareholder proposals; Shareholder voting; Corporate Governance

JEL Classification: G3; D72

Suggested Citation

Gantchev, Nickolay and Giannetti, Mariassunta, The Costs and Benefits of Shareholder Democracy (December 1, 2018). SMU Cox School of Business Research Paper No. 18-35; Swedish House of Finance Research Paper No. 18-15. Available at SSRN: https://ssrn.com/abstract=3269378 or http://dx.doi.org/10.2139/ssrn.3269378

Nickolay Gantchev (Contact Author)

Southern Methodist University (SMU) - Finance Department ( email )

United States
214-768-4128 (Phone)

European Corporate Governance Institute (ECGI) ( email )

HOME PAGE: http://www.ecgi.org

Mariassunta Giannetti

Stockholm School of Economics ( email )

P.O. Box 6501
Sveavagen 65
SE-113 83 Stockholm
Sweden
+46 8 736 9607 (Phone)
+46 8 312 327 (Fax)

HOME PAGE: http://sites.google.com/site/mariassuntagiannetti/Home

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

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