Corporate Voting vs. Market Price Setting

Abstract

This paper examines the relation between two means of information aggregation for corporations - corporate voting and stock market pricing. If the median voter and the price-setting shareholder share similar information sets, then the outcome of close proxy contests should not have a systematic effect on stock prices. The paper shows, however, that close dissident victories are associated with significant positive movements in stock prices, while close management victories are associated with negative stock price effects. The median voter values management control more highly than the price-setting shareholder. This suggests that voting and market pricing aggregate information in very different ways, with important implications for the role of voting and market pricing in corporate law and finance.

Keywords: corporate governance, shareholder voting, democracy, event study, regression discontinuity