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 :

December 02 2018
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  • shareholder activism • 
  • shareholder proposals • 
  • Shareholder voting • 
  • Corporate governance

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.