Trading and Shareholder Democracy

Levit, Doron; Malenko, Nadya; Maug, Ernst G.

doi:10.2139/ssrn.3463129

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Trading and Shareholder Democracy

Journal of Finance, Vol. 79 (1), 257-304, February 2024

European Corporate Governance Institute – Finance Working Paper No. 631/2019

60 Pages Posted: 3 Oct 2019 Last revised: 3 Apr 2024

See all articles by Doron Levit

Doron Levit

University of Washington, Foster School of Business; European Corporate Governance Institute (ECGI)

Boston College, Carroll School of Management; National Bureau of Economic Research (NBER); Finance Theory Group (FTG); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Ernst G. Maug

University of Mannheim Business School; European Corporate Governance Institute (ECGI)

There are 2 versions of this paper

Date Written: February 1, 2024

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. Relaxing trading frictions can reduce welfare because it allows extreme shareholders to gain more weight in voting. Delegating decision-making to the board can help overcome collective action problems at the voting stage. We also analyze the role of index investors and social concerns of shareholders.

Keywords: Corporate Governance, Voting, Shareholder Rights, Trading, Delegation

JEL Classification: D74, D83, G34, K22

Suggested Citation: Suggested Citation

Levit, Doron and Malenko, Nadya and Maug, Ernst G., Trading and Shareholder Democracy (February 1, 2024). Journal of Finance, Vol. 79 (1), 257-304, February 2024, European Corporate Governance Institute – Finance Working Paper No. 631/2019, Available at SSRN: https://ssrn.com/abstract=3463129 or http://dx.doi.org/10.2139/ssrn.3463129