Voice and Power: Do Institutional Shareholders Make Use of Their Voting Power?

53 Pages Posted: 8 Nov 2018 Last revised: 13 Aug 2020

See all articles by Efrat Dressler

Efrat Dressler

The Hebrew University of Jerusalem

Date Written: June 4, 2020

Abstract

I investigate the role of voting power – the ability to influence a vote’s outcome – in the voting behavior of institutional shareholders. Using hand-collected data from Israel, an environment with concentrated ownership, I employ a power index borrowed from the political science literature to examine the voting power wielded by institutional shareholders and the voting patterns they display. I find that institutional shareholders’ voting power is negatively related to their tendency to vote against management: the stronger the shareholder, the higher the probability they will vote in favor of a management-sponsored proposal. Based on evidence obtained here, this behavior is attributable to pre-vote negotiations as well as to the voting strategy of “counting on my vote not counting.” Next, I use detailed data on shareholders’ votes to identify the channel through which a voting rule affects minority shareholder protection. I find that powerful institutional shareholders almost never use their voting power to vote against management, not even when signals of poor governance are discernible. I conclude that the effect of a voting rule on minority shareholder protection operates through proposal selection, rather than through direct voting.

Keywords: Corporate Governance, Shareholder Voting, Voting Behavior, Voting Power, Institutional Shareholders, Shareholder Protection, Expressive Voting

JEL Classification: G34,G23, L51

Suggested Citation

Dressler, Efrat, Voice and Power: Do Institutional Shareholders Make Use of Their Voting Power? (June 4, 2020). Available at SSRN: https://ssrn.com/abstract=3277511 or http://dx.doi.org/10.2139/ssrn.3277511

Efrat Dressler (Contact Author)

The Hebrew University of Jerusalem ( email )

Mount Scopus
Jerusalem, Jerusalem 91905
Israel

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