The Voting Premium

63 Pages Posted: 5 Jan 2021 Last revised: 1 Jun 2021

See all articles by Doron Levit

Doron Levit

University of Washington, Foster School of Business; European Corporate Governance Institute (ECGI)

Nadya Malenko

University of Michigan, Stephen M. Ross School of Business; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Ernst G. Maug

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

Multiple version iconThere are 2 versions of this paper

Date Written: May 20, 2021

Abstract

This paper develops a unified theory of blockholder governance and the voting premium. It explains how and why a voting premium emerges in the absence of takeovers and controlling shareholders. The model features a minority blockholder and dispersed shareholders who trade shares in a competitive market. Those who own shares after trading vote on a proposal at a shareholder meeting. A voting premium can emerge in equilibrium from the blockholder's desire to influence who exercises control, rather than from exercising control himself. We show that the voting premium is unrelated to measures of voting power and that empirical measures of the voting premium generally do not reflect the economic value of voting rights. Consistent with recent empirical studies, the model can generate a negligible voting premium even when the allocation of voting rights is important. The model can also explain a negative voting premium, which has been documented in several studies. It arises because of free-riding by dispersed shareholders on the blockholder's trades. Finally, the model has novel implications for the liquidity of voting vs. non-voting shares, the relationship between the voting premium and the price of a vote, competition for control among blockholders, the block premium, and corporate influence more generally.


The Online Appendix can be accessed at
https://www.nadyamalenko.com/VotingPremium_OnlineAppendix.pdf


Keywords: Voting, trading, voting premium, blockholders, ownership structure, shareholder rights, corporate governance

JEL Classification: D74, D82, D83, G34, K22

Suggested Citation

Levit, Doron and Malenko, Nadya and Maug, Ernst G., The Voting Premium (May 20, 2021). European Corporate Governance Institute – Finance Working Paper No. 720/2021, Available at SSRN: https://ssrn.com/abstract=3759761 or http://dx.doi.org/10.2139/ssrn.3759761

Doron Levit

University of Washington, Foster School of Business ( email )

434 Paccar Hall, 4273 E Stevens Way NE
Seattle, WA 98195
United States

HOME PAGE: http://https://sites.google.com/view/doronlevit

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Nadya Malenko

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Ernst G. Maug (Contact Author)

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 the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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