Trading and Shareholder Democracy
63 Pages Posted: 3 Oct 2019 Last revised: 22 Apr 2022
Date Written: April 20, 2022
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