We develop a model to examine implications of empowering shareholders to replace directors. We find that shareholder empowerment functions as a double‐edged sword. On the one hand, it can weaken ineffective boards' incentive to hold on to their position. On the other hand, it can induce both...

We develop a model to examine implications of empowering shareholders to replace the board of directors. We find that empowerment can benefit shareholders by providing incentive for boards to act in the best interests of the shareholders. Our results, however, also highlight unintended...