DP13358 The Costs and Benefits of Shareholder Democracy
|Author(s):||Nickolay Gantchev, Mariassunta Giannetti|
|Publication Date:||December 2018|
|Date Revised:||December 2018|
|Keyword(s):||corporate governance, Shareholder activism, Shareholder proposals, shareholder voting|
|Programme Areas:||Financial Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=13358|
We show that while low-cost shareholder activism via shareholder-sponsored proposals is occasionally value-enhancing, many proposals are submitted by the same few individual investors and other sponsors without organizational capabilities to analyze a large number of firms. These proposals if approved and subsequently implemented appear to destroy shareholder value. We show that firms whose shareholders are more likely to collect information before voting benefit from low-cost shareholder activism because these investors weed out low-quality proposals. We conclude that an informed shareholder base is crucial for firms to take advantage of low-cost shareholder activism.