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Vote Trading and Information Aggregation

57 Pages Posted: 20 Mar 2005  

Susan Kerr Christoffersen

University of Toronto - Rotman School of Management; Copenhagen Business School

Christopher Geczy

University of Pennsylvania - The Wharton School, Finance Department

Adam V. Reed

University of North Carolina Kenan-Flagler Business School

David K. Musto

University of Pennsylvania - Finance Department

Date Written: January 2007

Abstract

The standard analysis of corporate governance is that shareholders vote in the ratios that firms choose, such as one-share-one-vote. But if the cost of unbundling and trading votes is sufficiently low, then shareholders choose the ratios. We document an active market for votes within the equity-loan market, where the average vote sells for zero. We hypothesize that asymmetric information motivates this trade, and find support in the cross section of votes: there is more trade for higher-spread firms and more for poor performers, especially when the vote is close. Vote trading corresponds to support for shareholder proposals and opposition to management proposals. Similar results obtain in the U.K.

Keywords: information aggregation, voting rights, equity lending, vote trading

JEL Classification: D82, G2, G39, K22

Suggested Citation

Christoffersen, Susan Kerr and Geczy, Christopher and Reed, Adam V. and Musto, David K., Vote Trading and Information Aggregation (January 2007). AFA 2006 Boston Meetings Paper; Sixteenth Annual Utah Winter Finance Conference; ECGI - Finance Working Paper No. 141/2007. Available at SSRN: https://ssrn.com/abstract=686026 or http://dx.doi.org/10.2139/ssrn.686026

Susan E. Christoffersen (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada
416 946 5647 (Phone)
416 971 3048 (Fax)

HOME PAGE: http://www.rotman.utoronto.ca/schristoffersen

Copenhagen Business School

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

Christopher Charles Geczy

University of Pennsylvania - The Wharton School, Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States
(215) 898-1698 (Phone)
(215) 898-6200 (Fax)

Adam V. Reed

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

David K. Musto

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

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