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
JEL(s): D72, G3
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.