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How and Why do Investors Trade Votes, and What Does it Mean?

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Author Info
Susan E. K. Christoffersen ()
Christopher C. Geczy
David K. Musto
Adam V. Reed

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Abstract

The standard analysis of corporate governance is that shareholders vote in the ratios that firms choose, such as one-share-one-vote. But if the cost of unbundling and trading votes is sufficiently low, then shareholders vote in the ratios that they themselves choose. We document an active market for votes within the equity-loan market, where we find that the average vote sells for zero. We hypothesize that asymmetric information motivates these vote reallocations, and we find support for this view in the cross section of votes: there is more trade for higher-spread firms and more for poor performers, especially when the vote is close. We also find that the vote reallocations correspond to support for shareholder proposals and opposition to management proposals.

L'analyse classique de la gouvernance d'entreprise suppose que les actionnaires votent selon les modalités choisies par la firme, par exemple un vote par action. Mais si les coûts associés à la séparation et à l'échange des votes sont suffisamment faibles, alors les actionnaires votent selon les modalités qu'ils ont eux-mêmes choisies. Nous présentons le cas d'un marché actif de votes au sein du marché des mises de fonds sous forme d'emprunts (equity loans), où nous constatons qu'en moyenne les votes se vendent pour rien. Nous supposons que l'asymétrie d'information provoque cette réallocation des votes, et nous étayons cette hypothèse à travers l'étude transversale des votes : le nombre d'opérations est plus important pour les compagnies dont l'écart acheteur-vendeur est plus élevé ainsi que pour celles dont les résultats sont plus faibles, particulièrement lorsque le vote est clos. Cette étude montre aussi que la réallocation des votes permet de soutenir les propositions des actionnaires et de s'opposer à celles des gestionnaires.

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Paper provided by CIRANO in its series CIRANO Working Papers with number 2004s-23.

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Date of creation: 01 May 2004
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Handle: RePEc:cir:cirwor:2004s-23

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Related research
Keywords: vote trading; corporate governance; equity lending; information asymmetry; transaction de votes; gouvernance d'entreprise; prêt d'actions; asymétrie d'information;

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    Other versions:
  8. Christoffersen, Susan E. K. & Geczy, Christopher C. & Musto, David K. & Reed, Adam V., 2003. "The Limits to Dividend Arbitrage: Implications for Cross-Border Investment," Working Papers 03-2, University of Pennsylvania, Wharton School, Weiss Center. [Downloadable!]
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    Other versions:
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    Other versions:
  14. Geczy, Christopher C. & Musto, David K. & Reed, Adam V., 2002. "Stocks are special too: an analysis of the equity lending market," Journal of Financial Economics, Elsevier, vol. 66(2-3), pages 241-269. [Downloadable!] (restricted)
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    Other versions:
  18. Shleifer, Andrei & Vishny, Robert W, 1986. "Large Shareholders and Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 461-88, June. [Downloadable!] (restricted)
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