Advising the Management: A Theory of Shareholder Engagement

Advising the Management: A Theory of Shareholder Engagement

Ali Kakhbod, Uliana Loginova, Andrey Malenko, Nadya Malenko

Series number :

Serial Number: 

Date posted :

June 13 2022

Last revised :

March 19 2023
SSRN Share


  • shareholder engagement • 
  • communication • 
  • Advice • 
  • managerial learning • 
  • cheap talk • 
  • heterogeneous beliefs • 
  • ownership structure • 
  • Passive Funds • 
  • advisory voting

We study the effectiveness of shareholder engagement, that is, shareholders communicating their views to management. When shareholders and management have different beliefs, each shareholder engages more effectively when other shareholders engage as well. A limited shareholder base can thus prevent effective engagement.

However, a limited shareholder base naturally arises under heterogeneous beliefs because investors who most disagree with management do not become shareholders. Passive funds, which own the firm regardless of their beliefs, can counteract these effects and improve engagement. When shareholders' and management's preferences are strongly misaligned, shareholders' engagement decisions become substitutes and the role of ownership structure declines.

Published in

Published in: 
Review of Financial Studies, 2022


Real name:
Ali Kakhbod
Real name:
Uliana Loginova
Real name:
Research Member
Boston College, Carroll School of Management