Trading and Shareholder Democracy

63 Pages Posted: 3 Oct 2019 Last revised: 22 Apr 2022

See all articles by Doron Levit

Doron Levit

University of Washington, Foster School of Business; European Corporate Governance Institute (ECGI)

Nadya Malenko

University of Michigan, Stephen M. Ross School of Business; 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: 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

Levit, Doron and Malenko, Nadya and Maug, Ernst G., Trading and Shareholder Democracy (April 20, 2022). Journal of Finance, Forthcoming, 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 Washington, Foster School of Business ( email )

434 Paccar Hall, 4273 E Stevens Way NE
Seattle, WA 98195
United States

HOME PAGE: http://https://sites.google.com/view/doronlevit

European Corporate Governance Institute (ECGI) ( email )

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

Nadya Malenko

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

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

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