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 :

November 20 2019
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  • shareholder activism • 
  • shareholder proposals • 
  • Shareholder voting • 
  • Corporate governance

We study under what conditions the voting process weeds out harmful shareholder proposals. We show that there is cross-sectional variation in the quality of shareholder proposals. Some of the proposals submitted by the most active individual sponsors destroy shareholder value if supported by a majority of the votes cast and subsequently implemented.

Bad proposals are less likely to obtain shareholder voting support in firms in which a larger fraction of shareholders collects information. These firms benefit from shareholder proposals, suggesting that the voting process should be reformed, but that shareholders’ ability to submit proposals should not necessarily be limited.