The Corporate Governance Role of Retail Investors

56 Pages Posted: 22 Jun 2018 Last revised: 15 Oct 2018

See all articles by Gaia Balp

Gaia Balp

Bocconi University - Department of Law; EUSFIL Jean Monnet Centre of Excellence

Date Written: June 9, 2018

Abstract

Retail investors seem to be turning into minor actors on the U.S. and European corporate governance scene. Nevertheless, the issue of activating retail votes is becoming increasingly supported in the U.S., where a growing body of scholarship emphasizes the need to re-engage retail investors and explores a variety of possible means for retrieving the lost shareholders. Against this backdrop, this Article shows why supporting retail voting in the European and U.S. corporate landscape is not trivial. It then analyzes the potential constraints on retail shareholder engagement in the voting process posed by the current European regulatory framework and comparatively assesses whether, and if so how, the U.S. proposals for activating passive retail investor votes can provide a blueprint for a similar pattern in Europe. To encourage retail votes, minimizing cognitive costs of informed voting as well as psychological limitations associated with decision-making is necessary. Hence, this Article argues that helping retail shareholders overcome decision-making costs by widening the scope of the tools available in order to allow them tag along with more expert third parties—whether institutional investors, the controlling shareholders or the board of directors—to direct their voting decisions might usefully broaden the reach of the existing regulation in terms of its potential to increase shareholder participation.

Keywords: corporate governance, retail investors, institutional investors, shareholder voting, shareholder engagement

JEL Classification: K22

Suggested Citation

Balp, Gaia, The Corporate Governance Role of Retail Investors (June 9, 2018). Bocconi Legal Studies Research Paper, Loyola Consumer Law Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3193356 or http://dx.doi.org/10.2139/ssrn.3193356

Gaia Balp (Contact Author)

Bocconi University - Department of Law ( email )

Via Roentgen, 1
Milan, Milan 20136
Italy

EUSFIL Jean Monnet Centre of Excellence ( email )

Italy

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