The Shareholder's Dilemma: Voting and Trading

26 Pages Posted: 3 Sep 2019

See all articles by Adam Meirowitz

Adam Meirowitz

David Eccles School of Business, University of Utah

Shaoting Pi

University of Utah - Department of Finance

Date Written: August 29, 2019

Abstract

We develop a game theoretic model of shareholder voting that captures the fact that shareholders are traders/investors and assumes that they ultimately seek to maximize the return on their investment. By imbedding a model of shareholder voting in a model of market transactions we are able to better understand the nature of voting and its relationship to the market. The presence of liquidity generates a shareholder dilemma: Voting for the choice that a shareholder thinks is optimal for the rm maximizes her return only if she is pivotal; in all other instances it is better to protect her informational advantage over the market and vote against her information-moving the share price and then capitalizing on her informational advantage by buying or selling shares. The shareholders' dilemma requires that the equilibrium informativeness of voting may be quite low. In the limit shareholder votes are uncorrelated with their private information. Moreover, in all equilibria shareholders will have strong incentives to trade after the votes and heterogeneity in which side of the market they are on will depend on their private information.

Keywords: shareholder voting, corporate governance, information aggregation

JEL Classification: D72, G34, D83

Suggested Citation

Meirowitz, Adam and Pi, Shaoting, The Shareholder's Dilemma: Voting and Trading (August 29, 2019). Available at SSRN: https://ssrn.com/abstract=3445233 or http://dx.doi.org/10.2139/ssrn.3445233

Adam Meirowitz (Contact Author)

David Eccles School of Business, University of Utah ( email )

Garff Building
Salt Lake City, UT 84112
United States
6094391432 (Phone)

Shaoting Pi

University of Utah - Department of Finance ( email )

David Eccles School of Business
Salt Lake City, UT 84112
United States

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