Ernst Maug
Duke University, Durham, NC
ABSTRACT
This paper analyzes the efficiency of shareholder voting as a mechanism to resolve differences of opinion and conflicts of interest among shareholders. We analyze an environment where many shareholders receive noisy signals about the value of a proposal. They use their information strategically and condition their voting decision on the information they expect other shareholders to have whenever their own vote is pivotal for the outcome. We derive normative and positive implications. We find that supermajority rules are useful (1) for management proposals more than for shareholder proposals, and (2) for those types of proposals where the ex ante likelihood that they increase shareholder value is low and (3) where the evidence available to shareholders is biased against the proposal. Conflicts of interest among shareholders lead to a reduced efficiency of information aggregation, and dispersed ownership is unlikely to be conductive to effective voting outcomes. We show how a tow-stage mechanism typically found in corporate voting contests. Several empirical implications lead to suggestions for improving the methodology of analyzing stock price returns around voting contests. Proxy voting may be effective even if announcement returns are small.