Can Borrowing Shares Vindicate Shareholder Primacy?

Abstract:     
The recent use of borrowed votes to influence the outcome of proxy contests and takeovers has raised considerable alarm in the academic and financial press. In particular, commentators express concern about the consequences of freely decoupling the economic interests and voting power of shares trading in anonymous markets. I argue that a transparent public share borrowing market, if made available to institutional shareholders committed to long-term wealth maximization, could allay many such concerns. Moreover, such a market could empower institutional shareholders to take steps to improve corporate governance without the need to expand shareholder rights. I consider in turn the impact of facilitating share borrowing on the debate between managerial and shareholder primacy, on social welfare in various vote-buying transactions, and on existing securities loan markets.

Number of Pages in PDF File: 73

Keywords: Empty voting, securities lending, shareholder primacy

JEL Classification: K22

Accepted Paper Series