Trust and Shareholder Voting

Research Retrieved: July
Retrieve the paper from ECGI


Despite the fact that most institutional investors and asset managers operate on a global scale, the research on the role that culture plays in investor decisions is relatively scarce. With their paper on trust and shareholder voting, Lesmeister, Limbach and Goergen (2018) contribute to better understanding the impact of culture in finance and deliver interesting insights on this note in the context of investor participation and the effectiveness of shareholder voting.

Key Findings

  • Mistrust increases monitoring: Previous studies in economics suggest that trust lowers individuals concerns of being expropriated. In line with this view, the authors find that investor participation in terms of votes cast substantially increases with low country levels of trust. The results are supported by a comprehensive set of robustness tests addressing endogeneity concerns.
  • Culture could serve as a disciplining mechanism: The results support this view and show that managers do not appear to take advantage of higher levels of investor trusts.
  • Trust more, control less: On the contrary, trusting more and monitoring less could be value creating: while economic agents  spend  more  time monitoring each other when trust is low, more time remains to focus on productivity in high-trust environments. Throughout the study, this notion is supported by the empirical finding that low levels of voting participation are positively associated with future firm performance – if trust is high.

Meaning of Practice

Due to the global interconnection of financial markets, it is crucial for institutional investors, asset managers, analysts, and other finance professionals to better understand the role culture plays in investor decisions – particularly if these investor decisions are deemed to be value drivers. The insights provided in this study suggest that shareholders might do well to focus monitoring efforts on countries with low trust, and that investors and analysts should interpret voting participation and shareholder engagement against the background of the respective country trust regime.