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Past Issue • Oct-Dec 2011

On Enhancing Shareholder Control: A (Dodd-) Frank Assessment of Proxy Access

This article is a brief summary of the paper “On Enhancing Shareholder Control: A (Dodd-) Frank Assessment of Proxy Access” by Jonathan Cohn, University of Texas (Austin), Stuart Gillan, Texas Tech University and Jay Hartzell, University of Texas (Austin). The paper won the "Citi Best Paper" award at the Centre for Analytical Finance (CAF) Summer Research Conference 2011 out of over 140 submissions.

The optimal level of shareholder control is a central issue in corporate finance research. Shareholders devolving excessive control to managers can exacerbate the principal-agent problem, which arises when the interests of the shareholders and managers are not perfectly aligned. If the manager has too much control, she might undertake actions which, are in her self-interest but not necessarily in the firm’s. On the flip side, if the shareholders retain too much control, the firm might be unable to take advantage of the managers’ superior information about the firm’s projects.

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