Doing the Right Thing? The Voting Power Effect and Institutional Shareholder Voting

Abstract

Through a combination of a controlled experiment and a survey, we examine the effect of voting power on shareholders' voting behavior at general meetings. To avoid a selection bias, common in archival voting data, we exogenously manipulate shareholders' power to affect the outcome. Our findings suggest that, when it comes to corporate decisions involving conflicts of interest, voting power nudges shareholders to oppose management and to choose the "right" alternative, that is, vote against a proposal which prima facie does not serve the company's best interest. This effect obtained even when the dissenting vote contravened the choices of all other voters. Furthermore, the drive "to do the right thing" was established as significant, above and beyond the size of the economic stake. We also demonstrate that strategic voting among institutional investors is contingent on voting power: when in a position to affect the outcome of a vote, institutional investors tend to eschew strategic considerations and display fewer consistent patterns in their voting, compared to situations in which their ability to make a difference is limited. In anticipation of a "bad" proposal to be put to vote at the general shareholder meeting, institutional investors prefer to negotiate terms with management beforehand, and vote against it only after such negotiations fail. Our results shed new light on the "behind the scenes" processes in shareholder voting and underscore the importance of institutional investor agency to corporate governance, accountability, and minority shareholder representation. Keywords Voting power • Shareholder voting • Business ethics • Corporate governance JEL Classification G23 • G30 • G38With great power comes great responsibility.

The socio-psychological factors affecting the voting behaviour of the postgraduate politics students: a Q-methodology study

“…Accordingly, the impact of the financial status of individual and national economic indicators on voting behaviour is ignored. For a similar reason, incentivised experimental tools (see Orcutt and Orcutt, 1968;Smith and Walker, 1993;Camerer and Hogarth, 1999;Hertwig and Ortmann, 2001;Gaechter and Renner, 2010;Dressler and Mugerman, 2023), which are mostly used to identify economic factors that may affect voting behaviour, are not also used in this study. In other words, this study is conducted through the Q methodology within the framework of non-incentivised experimental approaches (for an illustrative example of a study that employs a non-incentivised approach, see Charness et al, 2021).…”

“…Bearing in mind the fact that identifying all factors influencing voting behaviour in all different areas is an arduous task, the following example can be given: Focusing on corporate governance and shareholder meetings, Dressler and Mugerman (2023) analyse the impact of voting power on the voting behaviour of shareholders at general meetings. They offer the following factors that shape voter behaviour with reference to a comprehensive literature review: outcome preferences, peer effects, self-interest, normative considerations, and voting power (2022, p. 1089).…”

“… Dressler and Mugerman’s (2023) aforementioned categorisation raises a crucial issue: The factors that motivate or influence voting are not only rational but may also be irrational, intangible, or emotional. This issue is particularly controversial in political science, where a vast scholarly literature has been devoted to the examination of rational and/or opposite factors affecting individual or collective voting behaviour, especially after the rise of postpositivist and postmodern theoretical and normative perspectives in political sciences (see Key, 1966 ; Kramer, 1971 ; Inglehart and Sidjanski, 1976 ; Books and Prysby, 1988 ; Inglehart and Norris, 2000 ; Duch and Stevenson, 2008 ; Bartels, 2010 ; Sharlamanov and Jovanoski, 2014 ; Mahsud and Amin, 2020 ).…”

“…They also review models aiming to express the motivations behind voting behaviours of individuals: instrumental voting, based on the assumption that "a voter's behaviour is rational and designed to maximise value, " and expressive voting, which claims that motivation for voting is not only about the ultimate outcome but also about "the significance of the very act of voting, " i.e., one may vote with the aim of expressing her own identity or moral view (2022, p. 1092; see also Ferejohn and Fiorina, 1974;Shayo, 2009;Shayo and Harel, 2012;Yin et al, 2021). Dressler and Mugerman's (2023) aforementioned categorisation raises a crucial issue: The factors that motivate or influence voting are not only rational but may also be irrational, intangible, or emotional. This issue is particularly controversial in political science, where a vast scholarly literature has been devoted to the examination of rational and/or opposite factors affecting individual or collective voting behaviour, especially after the rise of postpositivist and postmodern theoretical and normative perspectives in political sciences (see Key, 1966;Kramer, 1971;Inglehart and Sidjanski, 1976;Books and Prysby, 1988;Inglehart and Norris, 2000;Duch and Stevenson, 2008;Bartels, 2010;Sharlamanov and Jovanoski, 2014;Mahsud and Amin, 2020).…”

Online voting and minority shareholder dissent: Evidence from China

“…Black (1990) points out that minority shareholders are more likely to vote when they believe their votes can make a difference. Prior research shows that voting power affects voters’ decisions in political voting (Kamenica & Brad, 2014) and experiments (Dressler & Mugerman, 2023). We examine the effect of voting power in two ways.…”