Events

Professor Nadya Malenko
Professor of Finance and Wargo Family Faculty Fellow
Carroll School of Management
Boston College

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.