Voting and trading: The shareholder’s dilemma

Adam Meirowitz and Shaoting Pi

Journal of Financial Economics, 2022, vol. 146, issue 3, 1073-1096

Abstract: We study governance when shareholders vote and can also buy or sell shares. We find that voting for the policy that one believes is better for the firm maximizes portfolio value only when pivotal; otherwise, it is better to vote against one’s information, distort the market, and then trade at the distorted price. Equilibrium voting informativeness balances these forces and is demonstrably low. As the number of shareholders grows, the probability of making the correct decision becomes lower than the informational quality of just one shareholder’s private signal. Despite this, shareholders extract information rents from trading and thus obtain additional value from their private information. These effects are related to the level of direct information leakage in the market. The predicted patterns of trading and market volatility help reconcile several debates.

Keywords: Shareholder voting; Corporate governance; Information aggregation; Strategic voting (search for similar items in EconPapers)
JEL-codes: D72 D82 D83 G34 K22 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:146:y:2022:i:3:p:1073-1096

DOI: 10.1016/j.jfineco.2022.05.001

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