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Can Borrowing Shares Vindicate Shareholder Primacy?

73 Pages Posted: 28 Oct 2008  

Onnig H. Dombalagian

Tulane Law School

Date Written: October 26, 2008


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.

Keywords: Empty voting, securities lending, shareholder primacy

JEL Classification: K22

Suggested Citation

Dombalagian, Onnig H., Can Borrowing Shares Vindicate Shareholder Primacy? (October 26, 2008). UC Davis Law Review, Forthcoming; Tulane Public Law Research Paper No. 08-10. Available at SSRN:

Onnig Hatchig Dombalagian (Contact Author)

Tulane Law School ( email )

6329 Freret Street
New Orleans, LA 70118
United States

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