Journal of Finance Vol. 79 No. 1 2024

Trading and Shareholder Democracy

Doron Levit^{1,2,3,4,5,6,7,8,9,10,11}; Nadya Malenko^{1,2,3,4,5,6,7,8,9,10,11}; Ernst Maug²

¹ Boston College · ² Center for Economic and Policy Research · ³ Conference Board · ⁴ University of Wisconsin–Madison · ⁵ Reichman University · ⁶ Johns Hopkins University · ⁷ University of Mannheim · ⁸ Cornell University · ⁹ Frankfurt School of Finance & Management · ¹⁰ Drexel University · ¹¹ University of Hong Kong

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.

DOI

10.1111/jofi.13289

Volume

79

Issue

1

Pages

257-304

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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