Two-Class Voting: A Mechanism for Conflict Resolution in Bankruptcy?

44 Pages Posted: 10 Apr 2000

See all articles by Ernst G. Maug

Ernst G. Maug

University of Mannheim Business School; European Corporate Governance Institute (ECGI)

Bilge Yilmaz

University of Pennsylvania - Finance Department

Date Written: January 31, 2000

Abstract

This paper discusses the merits of two-class voting procedures where voters are separated into classes that vote separately. A prominent example are Chapter 11 bankruptcy proceedings, where claim-holders who decide on a workout proposal are divided into classes, and the approval of the proposal needs a majority of the votes in each class. Some political mechanisms employ a similar process. We analyze two-class voting in a context where voters have conflicts of interest as well as differences of opinion regarding a proposal. We investigate how voting mechanisms aggregate information dispersed among voters. We find that two-class voting provides a significant improvement over single-class voting in all those situations where voters have significant conflicts of interests, and where the electorate is relatively evenly divided between different interest groups. Then voting in homogeneous groups provides voters with protection against expropriation and allows them to reveal their information through voting. However, two-class voting is inefficient for relatively homogenous electorates.

Keywords: Information Aggregation, Voting, Corporate Control, Bankruptcy

JEL Classification: G30, G34, D72

Suggested Citation

Maug, Ernst G. and Yilmaz, Bilge, Two-Class Voting: A Mechanism for Conflict Resolution in Bankruptcy? (January 31, 2000). Available at SSRN: https://ssrn.com/abstract=209430 or http://dx.doi.org/10.2139/ssrn.209430

Ernst G. Maug

University of Mannheim Business School ( email )

L9, 1-2
Mannheim, 68131
Germany
+49 621 181-1952 (Phone)

HOME PAGE: http://cf.bwl.uni-mannheim.de/de/people/maug/

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Bilge Yilmaz (Contact Author)

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States
215-898-1163 (Phone)
215-898-6200 (Fax)

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