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Trading and shareholder democracy

Nadya Malenko, Doron Levit and Ernst Maug

No 14039, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: 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. Relaxing trading frictions can reduce welfare, because it allows extreme shareholders to gain more weight in voting. Delegating decision-making to the board can help overcome collective action problems at the voting stage. We also analyze the role of index investors and social concerns of shareholders.

Keywords: Corporate governance; Voting; Shareholder rights; Trading; Delegation (search for similar items in EconPapers)
JEL-codes: D74 D83 G34 K22 (search for similar items in EconPapers)
Date: 2022-04
New Economics Papers: this item is included in nep-cdm, nep-cfn, nep-mic and nep-mst
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