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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. Increasing liquidity can reduce welfare, because it allows extreme shareholders to gain more weight in voting. Delegating decision-making to the board can improve shareholder value. However, the optimal board is biased, does not represent current shareholders, and may not garner support from the majority 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. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=14039