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Buying Shares and/or Votes for Corporate Control

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  • Eddie Dekel
  • Asher Wolinsky

Abstract

We explore how allowing votes to be traded separately of shares may affect the efficiency of corporate control contests. Our basic set-up and the nature of the questions continue the work of Grossman and Hart (1980) , Harris and Raviv (1988) , and Blair, Golbe and Gerard (1989). We consider three cases with respect to the allowable price offers (for shares and for votes when they can be traded separately): unrestricted price offers, quantity-restricted price offers, and price offers contingent on winning. Our main results are characterizations of the equilibria and of the circumstances under which vote buying is harmful. We show that allowing votes to be traded separately of shares results in inefficiencies in all the cases we study. Similarly allowing quantity-restricted offers is also harmful, but allowing conditional offers is not in itself detrimental to efficiency. The paper also makes a methodological contribution to the analysis of takeover games with atomless shareholders. It provides a way of dealing with asymmetric equilibria that must be dealt with for a complete analysis and it proves existence of an equilibrium. Copyright 2012, Oxford University Press.

Suggested Citation

  • Eddie Dekel & Asher Wolinsky, 2012. "Buying Shares and/or Votes for Corporate Control," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 79(1), pages 196-226.
    • Handle: RePEc:oup:restud:v:79:y:2012:i:1:p:196-226
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    File URL: http://hdl.handle.net/10.1093/restud/rdr028
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    Cited by:

    1. Kimbrough, Erik O. & Laughren, Kevin & Sheremeta, Roman, 2020. "War and conflict in economics: Theories, applications, and recent trends," Journal of Economic Behavior & Organization, Elsevier, vol. 178(C), pages 998-1013.
    2. Mike Burkart & Samuel Lee, 2015. "Signalling to Dispersed Shareholders and Corporate Control," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 82(3), pages 922-962.
    3. Malenko, Nadya & Levit, Doron & Maug, Ernst, 2021. "The voting premium," CEPR Discussion Papers 15718, C.E.P.R. Discussion Papers.
    4. Meirowitz, Adam & Pi, Shaoting, 2022. "Voting and trading: The shareholder’s dilemma," Journal of Financial Economics, Elsevier, vol. 146(3), pages 1073-1096.
    5. Azar, José & Schmalz, Martin & Tecu, Isabel, 2017. "Anti-Competitive Effects of Common Ownership," IESE Research Papers D/1169, IESE Business School.

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