The Costs and Benefits of Shareholder Democracy

61 Pages Posted: 18 Oct 2018 Last revised: 15 Mar 2019

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: March 1, 2019

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. 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 (March 1, 2019). SMU Cox School of Business Research Paper No. 18-35; Swedish House of Finance Research Paper No. 18-15; European Corporate Governance Institute (ECGI) - Finance Working Paper No. 586/2018. 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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