Retail Shareholder Participation in the Proxy Process: Monitoring, Engagement, and Voting

We study retail shareholder voting using a nearly comprehensive sample of U.S. ownership and voting records over the period 2015–2017. Analyzing turnout within a rational choice framework, we find that participation increases with ownership and expected benefits from winning and decreases with higher costs of participation. Even shareholders with negligible likelihood of affecting the outcome have non-zero turnout, consistent with consumption benefits from voting. Conditional on participation, retail shareholders punish the management of poorly performing firms and are more likely to exit the firm after voting against incumbent management. We show that retail voting decisions are impactful, altering proposal outcomes as frequently as those of the “Big Three” institutional investors. Overall, our evidence provides support for the idea that retail shareholders utilize their voting power as a means to monitor firms and communicate with incumbent boards and managements.