Does Pay Activism Pay Off for Shareholders? Shareholder Democracy and Its Discontents

• 成果类型: Article
• 署名作者: Dasgupta, Sudipto; Noe, Thomas H.
• 署名单位: Chinese University of Hong Kong; Lancaster University; Center for Economic & Policy Research (CEPR); University of Oxford; University of Oxford
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2017.2854
• 发表日期: 2019
• 页码: 1810-1832
• 关键词: GOVERNANCE; SHAREHOLDER ACTIVISM; Executive compensation; discretionary pay; CHARTER AMENDMENTS

摘要

Typically, shareholders are not sure whether boards act in their interest or have been captured by management. They are also less well informed than boards about firm investment opportunities and operating conditions. We develop a model, consistent with these observations, in which discretionary compensation payments to managers might increase firm value or might simply enrich managers at the expense of shareholders. After observing the board's compensation and investment policies, shareholders use Bayes's rule to update the probability that the board is captured. Shareholders are outraged if this updated probability is sufficiently large. Outrage is costly for the board. Shareholder democracy, by enabling outrage to constrain board actions, typically lowers firm value relative to either governance regimes that insulate boards from shareholder outrage or regimes that ban discretionary compensation altogether.