57 Pages Posted: 20 Mar 2005
Date Written: January 2007
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: 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