Vote Trading and Information Aggregation

Authors

  • SUSAN E.K. CHRISTOFFERSEN,

  • CHRISTOPHER C. GECZY,

  • DAVID K. MUSTO,

  • ADAM V. REED

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    • Christoffersen is with McGill University, Geczy and Musto are with the University of Pennsylvania, and Reed is with the University of North Carolina. The authors thank the editor, the associate editor, and an anonymous referee. We have greatly benefited from helpful advice and comments from Renée Adams, Bernard Black, Diane Del Guercio, Henry Hu, Jonathon Karpoff, Laurence Lescourret, Paul Malatesta, Ron Masulis, Randall Meades, Felix Meschke, Micah Officer, Artur Raviv, Honorable Leo Strine, Jr., Ralph Walkling, Lucy White, other sources who prefer to remain anonymous, and numerous seminar participants. We are grateful for financial support from SSHRC, FQRSC, IFM2, Canadian Securities Institute Research Foundation, and the Rodney L. White Center for Financial Research, and for research assistance from Jeff Ng, Eric Turner, Tristan Musgrave, and Michelle Zhang.


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.

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