The Costs and Benefits of Shareholder Democracy

The Costs and Benefits of Shareholder Democracy

Nickolay Gantchev, Mariassunta Giannetti

Series number :

Serial Number: 

Date posted :

December 20 2018

Last revised :

June 04 2019
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  • shareholder activism • 
  • shareholder proposals • 
  • Shareholder voting • 
  • Corporate governance

Can there be too much shareholder activism? We document for the first time the costs and benefits of individual investor activism through shareholder-sponsored proposals. As the least costly form of intervention, shareholder proposals can benefit firms that are less likely to be targeted by hedge funds.

Yet, many proposals are submitted by the same few “corporate gadflies”, individuals without organizational capabilities to analyze a large number of firms. These proposals, if approved and subsequently implemented, appear to destroy shareholder value. Only firms whose shareholders collect information before voting benefit from low-cost shareholder activism because informed shareholders weed out low-quality proposals. We conclude that an informed shareholder base is crucial for firms to take advantage of low-cost shareholder activism.