The Costs and Benefits of Shareholder Democracy: Gadflies and Low-Cost Activism

80 Pages Posted: 18 Oct 2018 Last revised: 5 Oct 2020

See all articles by Nickolay Gantchev

Nickolay Gantchev

University of Warwick - Warwick Business School; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Mariassunta Giannetti

Stockholm School of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swedish House of Finance

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Date Written: September 26, 2020

Abstract

We show that there is cross-sectional variation in the quality of shareholder proposals. On average, the proposals submitted by the most active individual sponsors are less likely to be supported by a majority of votes, but they occasionally pass if shareholders mistakenly support them and may even be implemented due to directors’ career concerns. While gadflies’ proposals destroy shareholder value if they pass, shareholder proposals on average are value-enhancing in firms with more informed shareholders. We conclude that more informed voting could increase the benefits associated with shareholder proposals.

Keywords: Shareholder Activism; Shareholder Proposals; Shareholder Voting; Corporate Governance

JEL Classification: G3; D72

Suggested Citation

Gantchev, Nickolay and Giannetti, Mariassunta, The Costs and Benefits of Shareholder Democracy: Gadflies and Low-Cost Activism (September 26, 2020). Review of Financial Studies, forthcoming, Swedish House of Finance Research Paper No. 18-15, European Corporate Governance Institute (ECGI) - Finance Working Paper No. 586/2018, Available at SSRN: https://ssrn.com/abstract=3269378 or http://dx.doi.org/10.2139/ssrn.3269378

Nickolay Gantchev (Contact Author)

University of Warwick - Warwick Business School ( email )

Coventry CV4 7AL
United Kingdom

HOME PAGE: http://www.NickolayGantchev.com

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

HOME PAGE: http://cepr.org

European Corporate Governance Institute (ECGI) ( email )

HOME PAGE: http://ecgi.global/users/nickolay-gantchev

Mariassunta Giannetti

Stockholm School of Economics ( email )

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+46 8 736 9607 (Phone)
+46 8 312 327 (Fax)

HOME PAGE: http://sites.google.com/site/mariassuntagiannetti/Home

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

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1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Swedish House of Finance ( email )

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111 60 Stockholm
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