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Empty voting and the efficiency of corporate governance

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  • Brav, Alon
  • Mathews, Richmond D.

Abstract

We model corporate voting outcomes when an informed trader, such as a hedge fund, can establish separate positions in a firm's shares and votes (empty voting). The positions are separated by borrowing shares on the record date, hedging economic exposure, or trading between record and voting dates. We find that the trader's presence can improve efficiency overall despite the fact that it sometimes ends up selling to a net short position and then voting to decrease firm value. An efficiency improvement is likely if other shareholders' votes are not highly correlated with the correct decision or if it is relatively expensive to separate votes from shares on the record date. On the other hand, empty voting will tend to decrease efficiency if it is relatively inexpensive to separate votes from shares and other shareholders are likely to vote the right way.

Suggested Citation

  • Brav, Alon & Mathews, Richmond D., 2011. "Empty voting and the efficiency of corporate governance," Journal of Financial Economics, Elsevier, vol. 99(2), pages 289-307, February.
  • Handle: RePEc:eee:jfinec:v:99:y:2011:i:2:p:289-307
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    References listed on IDEAS

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    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. A market for corporate votes
      by JP Koning in Moneyness on 2014-08-30 19:39:00

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    Cited by:

    1. repec:oup:revfin:v:21:y:2017:i:1:p:7-31. is not listed on IDEAS
    2. Bar-Isaac, Heski & Shapiro, Joel, 2017. "Blockholder Voting," CEPR Discussion Papers 11933, C.E.P.R. Discussion Papers.
    3. Edmans, Alex & Holderness, Clifford, 2016. "Blockholders: A Survey of Theory and Evidence," CEPR Discussion Papers 11442, C.E.P.R. Discussion Papers.
    4. Mike Burkart & Samuel Lee, 2015. "Signalling to Dispersed Shareholders and Corporate Control," Review of Economic Studies, Oxford University Press, vol. 82(3), pages 922-962.
    5. Daniel Dupuis & Lawrence Kryzanowski, "undated". "Governance and Short Sales," Finance Working Papers 03-04/2015, School of Business Administration, American University of Sharjah.

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