Voting in Shareholders Meetings
60 Pages Posted: 12 Jul 2021 Last revised: 3 Apr 2022
Date Written: July 2021
This paper studies voting in shareholders meetings. We focus on the informational efficiency of different voting mechanisms, taking into account that they affect both management’s incentives before the meeting and shareholders’ decisions at the meeting. We first deal with the case in which the management does not affect the proposal being voted on. We show that, for any distribution of shareholdings and any informational asymmetry among shareholders, a voting mechanism with a richer ballot space dominates a voting mechanism with a poorer one. We then show that efficiency requires full divisibility of the votes. Second, we consider the case in which the management decides whether to put the proposal to a vote. The properties of a voting mechanism then depend both on its voting efficiency and on how it affects managers’ incentives to select good proposals. We uncover a trade-o¤ between selection and voting efficiency underlying the comparison of voting mechanisms: the higher voting efficiency of mechanisms with richer ballot space implies worse selection incentives. In some cases, the negative effect of worse selection incentives on shareholders’ welfare can be large enough to wash out the higher voting efficiency of even the most efficient mechanism.
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