Trading and Shareholder Democracy

60 Pages Posted: 3 Oct 2019 Last revised: 6 Aug 2020

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: July 13, 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. Prices and shareholder welfare can move in opposite directions, so the former may be an invalid proxy for the latter. Increasing liquidity can reduce welfare, because it allows extreme shareholders to gain more weight in voting. 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.


The Online Appendix can be accessed at
https://www.nadyamalenko.com/Levit,Malenko,Maug_OnlineAppendix.pdf


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 (July 13, 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 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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