As part of the series of the „Finance Research Seminar“, VGSF welcomes Magda Rola-Janicka from Imperial College London to present her research paper.
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Paper
Voting on Public Goods: Citizens vs. Shareholders
(joint with Robin Döttling, Doron Levit and Nadya Malenko)
We study the interplay between a “one person-one vote” political system and a “one share-one vote” corporate governance regime. The political system sets Pigouvian subsidies, while corporate governance determines firm-specific public good investments. Our analysis highlights a two-way feedback effect: the governance system affects firms` responses to public policy, and the political system responds to the governance regime. If shareholders push firms for more pro-social policies, a backlash against ESG initiatives may arise, and the political system may undo corporate social responsibility measures. In a frictionless economy, shareholder democracy is irrelevant: the political system fully offsets any effects of shareholder influence. With frictions in public policy provision, pro-social corporations fill the void of a dysfunctional regulatory system and increase the provision of public goods—demonstrating the benefit of shareholder democracy. Nevertheless, shareholder democracy can hurt a typical citizen because of the representation problem: it favors the preferences of the wealthy. Advancements in financial technologies that increase investor diversification or enable pass-through voting have important implications for these trade-offs of shareholder democracy.
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