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Vote Trading and Information Aggregation
Author(s) -
CHRISTOFFERSEN SUSAN E.K.,
GECZY CHRISTOPHER C.,
MUSTO DAVID K.,
REED ADAM V.
Publication year - 2007
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.2007.01296.x
Subject(s) - shareholder , voting , business , equity (law) , unbundling , corporate governance , contingent vote , loan , microeconomics , monetary economics , economics , financial economics , finance , group voting ticket , industrial organization , politics , political science , law
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.