Trade, voting, and firm policies: Theory and evidence
Abstract
We model the interaction between shareholder trading and voting on firm policies that create externalities for which investors have heterogenous preferences, and we test the model’s equilibrium predictions in the laboratory. The model suggests, and laboratory results confirm, that low policy costs favor policy adoption while intermediate costs lead to a lower policy adoption rate under dispersed preferences than under polarized preferences. Observed share prices are higher than equilibrium predictions when the policy is adopted and are close to the fundamental value of the firm had the policy not been adopted. We conclude that the adoption of costly policies with externalities may be less burdensome to shareholders than predicted.
Fields of Study & Subjects
Global trade and economics
International Business and FDI
Publication details
- Journal / source
- European Economic Review
- Publisher
- Elsevier BV
- Volume
- 188
- Pages
- 105425–105425
- Publication date
- 9 July 2026
- Language
- EN