Advising the Management: A Theory of Shareholder Engagement

57 Pages Posted: 23 Jun 2022

See all articles by Ali Kakhbod

Ali Kakhbod

University of California, Berkeley

Uliana Loginova

Columbia University - Graduate School of Arts and Sciences

Andrey Malenko

Boston College

Nadya Malenko

Boston College

Multiple version iconThere are 2 versions of this paper

Date Written: June 2022

Abstract

We study the effectiveness of shareholder engagement, i.e., shareholders communicating their views to management. When shareholders and management have different beliefs, each shareholder engages more effectively when more other shareholders engage as well. A limited shareholder base can thus prevent effective engagement. However, a limited shareholder base naturally arises under heterogeneous beliefs because investors who most disagree with management do not become shareholders. Passive funds, who own the firm regardless of their beliefs, can counteract these effects and improve engagement. When shareholders' and management's preferences are strongly misaligned, shareholders' engagement decisions become substitutes and the role of ownership structure declines.

Keywords: Advice, advisory voting, cheap talk, communication, heterogeneous beliefs, Managerial learning, Ownership Structure, passive funds, shareholder engagement

JEL Classification: D71, D74, D82, D83, G34

Suggested Citation

Kakhbod, Ali and Loginova, Uliana and Malenko, Andrey and Malenko, Nadya, Advising the Management: A Theory of Shareholder Engagement (June 2022). CEPR Discussion Paper No. DP17363, Available at SSRN: https://ssrn.com/abstract=4144681

Ali Kakhbod (Contact Author)

University of California, Berkeley ( email )

Haas School of Business
2220 Piedmont Ave
Berkeley, CA 94720
United States

Uliana Loginova

Columbia University - Graduate School of Arts and Sciences ( email )

New York, NY 10027
United States

Andrey Malenko

Boston College

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Nadya Malenko

Boston College

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

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