The Costs and Benefits of Shareholder Democracy
61 Pages Posted: 18 Oct 2018 Last revised: 15 Mar 2019
Date Written: March 1, 2019
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. 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: Suggested Citation