Trading and Shareholder Democracy

Trading and Shareholder Democracy

Doron Levit, Nadya Malenko, Ernst Maug

Series number :

Serial Number: 

Date posted :

October 02 2019

Last revised :

January 28 2021
SSRN Share


  • Corporate governance • 
  • voting • 
  • shareholder rights • 
  • trading • 
  • Delegation

We study shareholder voting in a model in which trading affects the composition of the shareholder base. Trading and voting are complementary, which gives rise to self-fulfilling expectations about proposal acceptance and multiple equilibria. Prices and shareholder welfare can move in opposite directions, so the former may be an invalid proxy for the latter.

Increasing liquidity can reduce welfare, because it allows extreme shareholders to gain more weight in voting. Delegating decision-making to the board can improve shareholder value. However, the optimal board is biased, does not represent current shareholders, and may not garner support from the majority of shareholders.