Review of Financial Studies Vol. 36 No. 4 2023

Advising the Management: A Theory of Shareholder Engagement

Ali Kakhbod¹; Uliana Loginova²; Andrey Malenko³; Nadya Malenko⁴

¹ University of California , Berkeley, USA · ² McKinsey & Company , Italy · ³ University of Michigan , USA, and CEPR · ⁴ University of Michigan , USA, CEPR, and ECGI

Abstract

We study the effectiveness of shareholder engagement, that is, shareholders communicating their views to management. When shareholders and management have different beliefs, each shareholder engages more effectively when 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, which 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.

DOI

10.1093/rfs/hhac061

Volume

36

Issue

4

Pages

1319-1363

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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