Trading and Shareholder Democracy
57 Pages Posted: 7 Oct 2019 Last revised: 7 Sep 2020
Date Written: October 2019
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.
Keywords: corporate governance, delegation, Shareholder rights, Trading, voting
JEL Classification: D74, D83, G34, K22
Suggested Citation: Suggested Citation
Nadya Malenko
University of Michigan, Stephen M. Ross School of Business ( email )
701 Tappan Street
Ann Arbor, MI MI 48109
United States
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