Speaker: Associate Professor Alan Crane
Institution: Rice University
Title: Errors in Shareholder Voting
Abstract: This paper studies voting error rates for shareholder proposals. Voting errors occur when bad proposals pass (false positives) and when good proposals fail (false negatives). We measure these errors in voting outcomes by developing a micro-founded structural framework that characterizes the voting process. Our estimates indicate that more than one-quarter of vote outcomes are mistakes. Almost 7% of proposals pass but are bad, and about 21% fail despite being good. Examining variation across ownership characteristics, our analysis identifies a trade-off between error types, although voting errors are worse when passive ownership is high. In the presence of a hedge fund activist, almost all good proposals pass. Finally, error rates are higher when proxy advisors are in favor of the proposal and after electronic proxies are mandated. Overall, our evidence highlights the importance of information collection incentives in voting outcomes and informs the policy debate on regulating the shareholder voting process.
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