The Market Value of Corporate Votes: Theory and Evidence from Option Prices

Authors

  • AVNER KALAY,

  • OǦUZHAN KARAKAŞ,

  • SHAGUN PANT

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    • Avner Kalay is Maurice and Gertrude Deutch Chaired Professor at Tel Aviv University and Francis A. Madsen Professor at the University of Utah, Oǧuzhan Karakaş is Assistant Professor at Boston College, and Shagun Pant is Assistant Professor at the University of Iowa. This paper combines two earlier papers: “The Market Value of the Vote: A Contingent Claims Approach” by Kalay and Pant and “Another Option for Determining the Value of Corporate Votes” by Karakaş. We thank seminar participants at the 2011 Southwind Conference, 2010 WFA, 2009 NFA, 2009 Banff Frontiers in Finance Conference, 2009 Drexel Corporate Governance Conference, 2009 NYU-Penn Law and Finance Conference, 2008 FMA Doctoral Consortium, Arizona State University, Bilkent University, Boston College, Boston University, Columbia University, EMLYON, Erasmus University, George Mason University, Harvard Business School, Imperial College, INSEAD, London Business School, MIT, NYU, Rutgers University, Stanford University, Tel Aviv University, Texas A&M University, Tilburg University, UC Berkeley, UCLA, University of Alberta, University of Florida, University of Iowa, University of Pennsylvania, University of Utah, Washington University in St. Louis, Yale University, and a conference held in the honor of Haim Levy for helpful comments. We also thank Viral Acharya, Yakov Amihud, Shmuel Baruch, Hank Bessembinder, Jennifer Carpenter, David Chapman, Francesca Cornelli, Julian Franks, Denis Gromb, Joel Hasbrouck, Clifford Holderness, Edith Hotchkiss, Michael Lemmon, Alan Marcus, Stewart Myers, Jeffrey Pontiff, Hélène Rey, Henri Servaes, Philip E. Strahan, Jérôme Taillard, Hassan Tehranian, Ashish Tiwari, Paolo Volpin, the Editor (Campbell Harvey), an Associate Editor, the referees, and an advisor for their helpful comments. Conversations with Nihat Aktaş, Sirio Aramonte, Yasuhiro Arikawa, Ramin Baghai, Süleyman Başak, Morten Bennedsen, Mikhail Chernov, Alexander Dyck, Daniel Ferreira, Marc Gabarro, Francisco Gomes, Jungsuk Han, Brandon Julio, Eugene Kandel, Samuli Knüpfer, Xi Li, Lars Lochstoer, Michelle Lowry, Pascal Maenhout, Massimo Massa, Narayan Naik, Anna Pavlova, Joël Peress, Urs Peyer, Ludovic Phalippou, Astrid Schornick, Lucie Tepla, Theo Vermaelen, Vikrant Vig, Russ Wermers, and Robert Whitelaw contributed greatly to this paper. Financial support from Marie Curie Early Stage Research Training Host Fellowship and from London Business School's Centre for Corporate Governance under ESRC contract number R060230004 are gratefully acknowledged by Karakaş.


ABSTRACT

This paper proposes a new method using option prices to estimate the market value of the shareholder voting rights associated with a stock. The method consists of synthesizing a nonvoting share using put-call parity, and comparing its price to that of the underlying stock. Empirically, we find this measure of the value of voting rights to be positive and increasing in the time to expiration of synthetic stocks. The measure also increases around special shareholder meetings, periods of hedge fund activism, and M&A events. The method is likely useful in studies of corporate control and also has asset pricing implications.

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