The Costs and Benefits of Shareholder Democracy
48 Pages Posted: 18 Oct 2018 Last revised: 1 May 2019
Date Written: April 29, 2019
Can there be too much shareholder activism? We document for the first time the costs and benefits of individual investor activism through shareholder-sponsored proposals. As the least costly form of intervention, shareholder proposals can benefit firms that are less likely to be targeted by hedge funds. Yet, many proposals are submitted by the same few “corporate gadflies”, individuals without organizational capabilities to analyze a large number of firms. These proposals, if approved and subsequently implemented, appear to destroy shareholder value. Only firms whose shareholders collect information before voting benefit from low-cost shareholder activism because informed shareholders 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: Suggested Citation