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Shareholder Passivity Reexamined

89 Pages Posted: 20 Jan 2003  

Abstract

This article assesses the extent to which the traditional passivity of American shareholders is a result of legal rules and conflicts of interest that discourage shareholder activism, or a result of collective action problems that discourage voting, proxy proposals, and other forms of shareholder activism. I develop a simple model of the decision of a large shareholder whether to vote or launch a proxy campaign. Large shareholders can have significant incentives to vote on an informed basis or launch proxy campaigns, especially for issues that are common across many companies and therefore involve economies of scale. However, they face significant legal impediments to owning large percentage stakes in companies or taking an activist role. These legal obstacles are reinforced by conflicts of interest that affect most major classes of institutional investors.

Suggested Citation

Black, Bernard S., Shareholder Passivity Reexamined. As published in Michigan Law Review, Vol. 89, pp. 520-608, 1990. Available at SSRN: https://ssrn.com/abstract=366820 or http://dx.doi.org/10.2139/ssrn.366820

Bernard S. Black (Contact Author)

Northwestern University - Pritzker School of Law ( email )

375 E. Chicago Ave
Chicago, IL 60611
United States
312-503-2784 (Phone)

Northwestern University - Kellogg School of Management

2001 Sheridan Road
Evanston, IL 60208
United States
847-491-5049 (Phone)

European Corporate Governance Institute (ECGI)

Brussels
Belgium

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