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Voice and power: Do institutional shareholders make use of their voting power?

Efrat Dressler

Journal of Corporate Finance, 2020, vol. 65, issue C

Abstract: I investigate the role of voting power – the ability to influence a vote's outcome – in the voting behavior of institutional shareholders. Using hand-collected data from Israel, an environment with concentrated ownership, I employ a power index borrowed from the political science literature to examine the voting power wielded by institutional shareholders and the voting patterns they display. I find that institutional shareholders' voting power is negatively related to their tendency to vote against management: the stronger the shareholder, the higher the probability they will vote in favor of a management-sponsored proposal. Based on evidence obtained here, this behavior is attributable to pre-vote negotiations as well as to the voting strategy of “counting on my vote not counting.” Next, I use detailed data on shareholders' votes to identify the channel through which a voting rule affects minority shareholder protection. I find that powerful institutional shareholders almost never use their voting power to vote against management, not even when signals of poor governance are discernible. I conclude that the effect of a voting rule on minority shareholder protection operates through proposal selection, rather than through direct voting.

Keywords: Corporate governance; Voting behavior; Voting power; Shareholder voting; Shareholder protection; Institutional shareholders; Expressive voting (search for similar items in EconPapers)
JEL-codes: G34 G23 L51 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.jcorpfin.2020.101716

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