Shareholder Empowerment and Board of Directors Effectiveness

Posted: 5 Dec 2019

See all articles by George Drymiotes

George Drymiotes

Texas Christian University

Haijin Lin

University of Houston

Multiple version iconThere are 2 versions of this paper

Date Written: October 22, 2019


We develop a model to examine implications of empowering shareholders to replace directors. We find that shareholder empowerment functions as a double‐edged sword. On the one hand, it can weaken ineffective boards' incentive to hold on to their position. On the other hand, it can induce both effective and ineffective boards to behave strategically to avoid a potential dismissal. As a result, empowerment does not necessarily increase firm value; in some cases, empowerment exacerbates the agency problem it is intended to address. Giving shareholders the power to set board compensation (have a “say on pay”) can mitigate these problems. However, even when empowerment benefits (harms) the shareholders, firm value may decrease (increase). Finally, we discuss empirical and policy implications of the main findings.

Keywords: Board of directors, corporate governance, shareholder empowerment, Rule 14a- 11, Rule 14a-8, proxy access, director incentives

JEL Classification: D80, G34, M40

Suggested Citation

Drymiotes, George and Lin, Haijin, Shareholder Empowerment and Board of Directors Effectiveness (October 22, 2019). Contemporary Accounting Research, Forthcoming, Available at SSRN:

George Drymiotes (Contact Author)

Texas Christian University ( email )

M.J. Neeley School of Business
TCU Box 298530
Fort Worth, TX 76129
United States
817 257 5448 (Phone)

Haijin Lin

University of Houston ( email )

390F Melcher Hall
Bauer College of Business
Houston, TX 77204-6021
United States
7137437771 (Phone)

Do you want regular updates from SSRN on Twitter?

Paper statistics

Abstract Views
PlumX Metrics