Abstract

http://ssrn.com/abstract=1108632
 
 

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Empty Voting and the Efficiency of Corporate Governance


Alon Brav


Duke University - Fuqua School of Business

Richmond D. Mathews


University of Maryland - Department of Finance

February 3, 2010

AFA 2009 San Francisco Meetings Paper

Abstract:     
We model corporate voting outcomes when an informed trader, such as a hedge fund, can establish separate positions in a firm’s shares and votes (“empty voting”). The positions are separated by borrowing shares on the record date, hedging economic exposure, or trading between record and voting dates. We find that the trader’s presence can improve efficiency overall despite the fact that it sometimes ends up selling to a net short position and then voting to decrease firm value. An efficiency improvement is likely if other shareholders’ votes are not highly correlated with the correct decision or if it is relatively expensive to separate votes from shares on the record date. On the other hand, empty voting will tend to decrease efficiency if it is relatively inexpensive to separate votes from shares and other shareholders are likely to vote the right way.

Number of Pages in PDF File: 52

Keywords: voting, trading, hedge funds, corporate governance

JEL Classification: G34

working papers series


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Date posted: March 25, 2008 ; Last revised: March 27, 2010

Suggested Citation

Brav, Alon and Mathews, Richmond D., Empty Voting and the Efficiency of Corporate Governance (February 3, 2010). AFA 2009 San Francisco Meetings Paper. Available at SSRN: http://ssrn.com/abstract=1108632 or http://dx.doi.org/10.2139/ssrn.1108632

Contact Information

Alon Brav
Duke University - Fuqua School of Business ( email )
Box 90120
Durham, NC 27708-0120
United States
919-660-2908 (Phone)
919-684-2818 (Fax)
Richmond D. Mathews (Contact Author)
University of Maryland - Department of Finance ( email )
Robert H. Smith School of Business
Van Munching Hall
College Park, MD 20742
United States
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