Trading and Shareholder Democracy

57 Pages Posted: 3 Oct 2019 Last revised: 4 Mar 2020

See all articles by Doron Levit

Doron Levit

University of Pennsylvania - Finance Department; European Corporate Governance Institute (ECGI)

Nadya Malenko

Boston College - Carroll School of Management; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Ernst G. Maug

University of Mannheim Business School; European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: January 27, 2020

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. Increasing liquidity may reduce prices and welfare, because it allows extreme shareholders to gain more weight in voting. Prices and welfare can move in opposite directions, so the former are an invalid proxy for the latter. Delegating decision-making to the board can improve shareholder value. However, the optimal board is biased, does not represent current shareholders, and may not garner support from the majority of shareholders.

Keywords: Corporate Governance, Voting, Shareholder Rights, Trading, Delegation

JEL Classification: D74, D83, G34, K22

Suggested Citation

Levit, Doron and Malenko, Nadya and Maug, Ernst G., Trading and Shareholder Democracy (January 27, 2020). European Corporate Governance Institute – Finance Working Paper No. 631/2019. Available at SSRN: https://ssrn.com/abstract=3463129 or http://dx.doi.org/10.2139/ssrn.3463129

Doron Levit

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Nadya Malenko

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

HOME PAGE: http://www2.bc.edu/nadya-malenko/

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Ernst G. Maug (Contact Author)

University of Mannheim Business School ( email )

L9, 1-2
Mannheim, 68131
Germany
+49 621 181-1952 (Phone)

HOME PAGE: http://cf.bwl.uni-mannheim.de/de/people/maug/

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
217
Abstract Views
1,216
rank
147,697
PlumX Metrics