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Advising the Management: A Theory of Shareholder Engagement

Author

Listed:
  • Ali Kakhbod
  • Uliana Loginova
  • Andrey Malenko
  • Nadya Malenko
  • Itay Goldstein

Abstract

We study the effectiveness of shareholder engagement, that is, shareholders communicating their views to management. When shareholders and management have different beliefs, each shareholder engages more effectively when other shareholders engage as well. A limited shareholder base can thus prevent effective engagement. However, a limited shareholder base naturally arises under heterogeneous beliefs because investors who most disagree with management do not become shareholders. Passive funds, which own the firm regardless of their beliefs, can counteract these effects and improve engagement. When shareholders’ and management’s preferences are strongly misaligned, shareholders’ engagement decisions become substitutes and the role of ownership structure declines.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Suggested Citation

  • Ali Kakhbod & Uliana Loginova & Andrey Malenko & Nadya Malenko & Itay Goldstein, 2023. "Advising the Management: A Theory of Shareholder Engagement," The Review of Financial Studies, Society for Financial Studies, vol. 36(4), pages 1319-1363.
    • Handle: RePEc:oup:rfinst:v:36:y:2023:i:4:p:1319-1363.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhac061
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    More about this item

    JEL classification:

    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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