Vote Trading and Information Aggregation

Abstract

The standard analysis of corporate governance assumes that shareholders vote in ratios that firms choose, such as one share-one vote. However, if the cost of unbundling and trading votes is sufficiently low, then shareholders choose the ratios. We document an active market for votes within the U.S. equity loan market, where the average vote sells for zero. We hypothesize that asymmetric information motivates the vote trade and find support in the cross section. More trading occurs for higher-spread and worse-performing firms, especially when voting is close. Vote trading corresponds to support for shareholder proposals and opposition to management proposals.

The market for shareholder voting rights around mergers and acquisitions: Evidence from institutional daily trading and voting

“…The results indicate that net buying and buying around record dates are negatively related to investor support for merger proposals, a finding that is consistent with results presented by Christoffersen et al (2007) for the equity-loan market.…”

“…Although we cannot observe how institutions individually vote shares, following Christoffersen et al (2007) we can observe the association between institutional trading around record dates and shareholder voting in aggregate. Table 6 reports cross-sectional regression results of voting turnout and support on institutional-investor record-date trading.…”

Hedge funds, insiders, and the decoupling of economic and voting ownership: Empty voting and hidden (morphable) ownership

“…Compare Dodd and Warner (1983), who report that in proxy contests for control, share prices decline by 2-3% immediately following the record date. Christoffersen et al (2006) report higher share borrowing on record dates with no apparent change in price, but this seems unlikely to be an equilibrium outcome for contested elections.…”

“…There is also limited quantitative evidence on executive hedging (Bettis et al, 2001) and on record date capture (Christoffersen et al, 2006).…”

“…Christoffersen, Geczy, Musto and Reed (2006) report evidence of record date capture. Share borrowing spikes on the record date, increasing on average from 0.21% to 0.26% of outstanding shares.…”