Discussion Paper Details

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Title: Trading and shareholder democracy

Author(s): Doron Levit, Nadya Malenko and Ernst Maug

Publication Date: October 2019

Keyword(s): corporate governance, delegation, Shareholder rights, Trading and voting

Programme Area(s): Financial Economics

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.

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Bibliographic Reference

Levit, D, Malenko, N and Maug, E. 2019. 'Trading and shareholder democracy'. London, Centre for Economic Policy Research.