Strategic Voting and Proxy Contests

Rodney L. White Center for Financial Research Working Paper No. 05-00

Posted: 11 Sep 2000

See all articles by Bilge Yilmaz

Bilge Yilmaz

University of Pennsylvania - Finance Department

Abstract

We analyze proxy fights where privately informed shareholders are uncertain about the management ability of the raider. We show that the shareholders vote towards compensating for the initial bias formed by supermajority amendments and the shares that the incumbent controls. Consequently, the amount of support given to the raider is an increasing function of the initial bias favoring the incumbent. This compensating behavior may reverse the effects of the incumbent's defensive strategies. More specifically, we show that anti-takeover measures may increase the likelihood of a takeover by an inferior raider. In contrast to earlier sincere voting models we also show that simultaneous (strategic) voting can serve as a Pareto dominant voting mechanism for aggregating dispersed information.

JEL Classification: G34

Suggested Citation

Yilmaz, Bilge, Strategic Voting and Proxy Contests. Rodney L. White Center for Financial Research Working Paper No. 05-00, Available at SSRN: https://ssrn.com/abstract=228457

Bilge Yilmaz (Contact Author)

University of Pennsylvania - Finance Department ( email )

The Wharton School
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Philadelphia, PA 19104
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