Strategic Voting and Proxy Contests
Rodney L. White Center for Financial Research Working Paper No. 05-00
Posted: 11 Sep 2000
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: Suggested Citation