The Regulation of Shareholder Democracy

This paper studies how shareholder democracy regulations affect firm value and corporate decisions. We examine how investors and firms responded to an unexpected 2021 change in the SEC’s proxy guidelines that allowed more climate-related shareholder proposals. Firms with high carbon emissions experienced negative abnormal returns upon the announcement of the new guidelines. However, we find no evidence that high-emitting firms reduced actual or pledged carbon emissions or increased investment. We do find that high-emitting companies increased their engagement with proponents and stakeholders, suggesting that the new guidance diverted managerial attention toward non-operational activities. These findings question whether changes in SEC regulations of shareholder democracy enhance firm value and protect the welfare of investors.