Trading and Shareholder Democracy
Journal of Finance, Forthcoming
European Corporate Governance Institute – Finance Working Paper No. 631/2019
63 Pages Posted: 3 Oct 2019 Last revised: 22 Apr 2022
There are 2 versions of this paper
Trading and Shareholder Democracy
Trading and Shareholder Democracy
Date Written: April 20, 2022
Abstract
We study shareholder voting in a model in which trading affects the composition of the shareholder base. Trading and voting are complementary, which gives rise to self-fulfilling expectations about proposal acceptance and multiple equilibria. Prices and shareholder welfare can move in opposite directions, so the former may be an invalid proxy for the latter. Relaxing trading frictions can reduce welfare, because it allows extreme shareholders to gain more weight in voting. Delegating decision-making to the board can help overcome collective action problems at the voting stage. We also analyze the role of index investors and social concerns of shareholders.
Keywords: Corporate Governance, Voting, Shareholder Rights, Trading, Delegation
JEL Classification: D74, D83, G34, K22
Suggested Citation: Suggested Citation