Free-riders and Underdogs: Participation in Corporate Voting

Voting outcomes can differ from underlying preferences due to selection into voting. One source of such selection is lower participation of shareholders with popular preferences (free-rider effect) relative to that of those with unpopular preferences (underdog effect). We illustrate these strategic effects in a rational choice model in which the voting participation decision depends on the probability of being pivotal and the costs and benefits of voting. Based on the model, we structurally estimate unobservable shareholder preferences in US data. We show that strategic selection into voting is relevant: 13% of voting outcomes in shareholder governance proposals represent the minority.