Hostname: page-component-cd9895bd7-8ctnn Total loading time: 0 Render date: 2025-01-05T13:39:53.807Z Has data issue: false hasContentIssue false
  • English
  • Français

The Distribution of Voting Rights to Shareholders

Published online by Cambridge University Press:  25 July 2022

Vyacheslav Fos Open the ORCID record for Vyacheslav Fos [Opens in a new window]  and
Clifford G. Holderness
Vyacheslav Fos*
Affiliation:
Boston College Carroll School of Management
Clifford G. Holderness
Affiliation:
Boston College Carroll School of Management [email protected]
*
[email protected] (corresponding author)
Rights & Permissions [Opens in a new window]

Abstract

Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the ‘Save PDF’ action button.

This is the first comprehensive study of the distribution of voting rights to shareholders. Only individuals owning stock on a record date may vote. Firms, however, reveal record dates after the fact 91% of the time. With controversial votes, firms are more likely to do the opposite, and this tendency is associated with a lower passage rate for shareholder-initiated proposals. The New York Stock Exchange sells nonpublic record-date information to select investors. When stocks go ex vote, prices decline and trading volume surges, suggesting that activist investors are buying marginal votes. These trends are most pronounced with controversial votes.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 58 , Issue 5 , August 2023 , pp. 1878 - 1910
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2022. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

We thank Christopher Carpenter and Thomas Schneider for their research assistance. This article has benefited from the comments of an anonymous referee as well as from Reena Aggarwal, James Dow, Ran Duchin, Alex Edmans, Jarrad Harford, Wei Jiang, Marcel Kahan, Michelle Lowry, Nadya Malenko, David Musto, Jeffrey Pontiff, Edward Rock, Philip Strahan, and seminar participants at the annual meeting of the American Finance Association, Boston College, the Chinese University of Hong Kong, Fudan University, the London Business School, the NBER Summer Institute, New York University, the PBC School of Finance at Tsinghua University, the School of Economics and Management at Tsinghua University, the Securities and Exchange Commission, and the John L. Weinberg Center for Corporate Governance at the University of Delaware. This project has also benefited from the visiting scholar program of the Research Institute of Capital Formation at the Development Bank of Japan. Finally, we thank the John Weinberg Center for selecting this article for the John L. Weinberg/IRRCi Investor Research Award.

References

Aggarwal, R.; Saffi, P. A. C.; and Sturgess, J.. “The Role of Institutional Investors in Voting: Evidence from the Securities Lending Market.” Journal of Finance, 70 (2015), 2309–2346.CrossRefGoogle Scholar
Amihud, Y. “Illiquidity and Stock Returns: Cross-Section and Time-Series Effects.” Journal of Financial Markets, 5 (2002), 31–56.CrossRefGoogle Scholar
Angel, J. A. “Nonstandard-Settlement Transactions.” Financial Management, 27 (1998), 31–46.CrossRefGoogle Scholar
Baginski, S. P.; Clinton, S. B.; and McGuire, S. T.. “Forward-Looking Voluntary Disclosure in Proxy Contests.” Contemporary Accounting Research, 31 (2014), 1008–1046.10.1111/1911-3846.12057CrossRefGoogle Scholar
Bebchuk, L. A., and Kamar, E.. “Bundling and Entrenchment.” Harvard Law Review, 123 (2010), 1549–1595.Google Scholar
Bethel, J.; Hu, G.; and Wang, Q.. “The Market for Shareholder Voting Rights Around Mergers and Acquisitions: Evidence from Institutional Daily Trading and Voting.” Journal of Corporate Finance, 15 (2009), 129–145.CrossRefGoogle Scholar
Brav, A.; Cain, M. D.; and Zytnick, J.. “Retail Shareholder Participation in the Proxy Process: Monitoring, Engagement, and Voting.” Journal of Financial Economics, 144 (2022), 492–522.CrossRefGoogle Scholar
Brav, A., and Mathews, R. D.. “Empty Voting and the Efficiency of Corporate Governance.” Journal of Financial Economics, 99 (2011), 289–307.CrossRefGoogle Scholar
Cai, J., and Walkling, R. A.. “Shareholders’ Say on Pay: Does it Create Value?” Journal of Financial and Quantitative Analysis, 46 (2011), 299–339.CrossRefGoogle Scholar
Christoffersen, S. E. K.; Geczy, C. C.; Musto, D. K.; and Reed, A. V.. “Vote Trading and Information Aggregation.” Journal of Finance, 62 (2007), 2897–2929.CrossRefGoogle Scholar
Dimitrov, V., and Jain, P. C.. “It’s Showtime: Do Managers Report Better News Before Annual Shareholder Meetings?” Journal of Accounting Research, 49 (2011), 1193–1221.CrossRefGoogle Scholar
Dodd, P., and Warner, J. B.. “On Corporate Governance: A Study of Proxy Contests.” Journal of Financial Economics, 11 (1983), 401–438.CrossRefGoogle Scholar
Dolley, J. C. “The Price-Effect of Stock Right Issues.” Journal of Business, 7 (1934), 133–160.Google Scholar
Elton, E. J., and Gruber, M. J.. “Marginal Stockholder Tax Rates and the Clientele Effect.” Review of Economics and Statistics, 52 (1970), 68–74.CrossRefGoogle Scholar
Elton, E. J.; Gruber, M. J.; and Blake, C. R.. “Marginal Stockholder Tax Effects and Ex-Dividend Day Behavior—Thirty-Two Years Later.” Working Paper, available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=363620 (2003).CrossRefGoogle Scholar
Fos, V.; Li, K.; and Tsoutsoura, M.. “Do Director Elections Matter?” Review of Financial Studies, 31 (2018), 1499–1531.CrossRefGoogle Scholar
Ghosh, C.; Owers, J. E.; and Rogers, R. C.. “Proxy Contests: A Re-Examination of the Value of the Vote Hypothesis.” Managerial Finance, 18 (1992), 3–18.CrossRefGoogle Scholar
Hasbrouck, J.; Sofianos, G.; and Sosebee, D.. “New York Stock Exchange Systems and Trading Procedures.” Working Paper, New York Stock Exchange (1993).Google Scholar
Hirst, S., and Robertson, A. Z.. “Hidden Agendas in Shareholder Voting.” Yale Journal on Regulation, forthcoming (2022).CrossRefGoogle Scholar
Holderness, C. G. “Equity Issuances and Agency Costs: The Telling Story of Shareholder Approval Around the World.” Journal of Financial Economics, 129 (2018), 415–439.CrossRefGoogle Scholar
Hong, H., and Stein, J. C.. “Disagreement and the Stock Market.” Journal of Economic Perspectives, 21 (2007), 109–128.CrossRefGoogle Scholar
Hu, H. T. C., and Back, B.. “Hedge Funds, Insiders, and the Decoupling of Economic and Voting Ownership: Empty Voting and Hidden (Morphable) Ownership.” Journal of Corporate Finance, 13 (2007), 343–367.CrossRefGoogle Scholar
Huang, I-H “On the Estimation of the Value of Voting Rights: Evidence from Taiwan.” Corporate Ownership & Control, 3 (2005), 15–22.CrossRefGoogle Scholar
Jensen, M. C., and Ruback, R. S.. “The Market for Corporate Control: The Scientific Evidence.” Journal of Financial Economics, 11 (1983), 5–50.CrossRefGoogle Scholar
Kahan, M., and Rock, E.. “The Hanging Chads of Corporate Voting.” Georgetown Law Journal, 96 (2008), 1227–1281.Google Scholar
Kalay, A.; Karakas, O.; and Pant, S.. “The Market Value of Corporate Votes: Theory and Evidence from Option Prices.” Journal of Finance, 69 (2014), 1235–1271.10.1111/jofi.12132CrossRefGoogle Scholar
Kandel, E., and Pearson, N. D.. “Differential Interpretation of Public Signals and Trade in Speculative Markets.” Journal of Political Economy, 103 (1995), 831–872.CrossRefGoogle Scholar
Kind, A., and Poltera, M.. “The Value of Corporate Voting Rights Embedded in Option Prices.” Journal of Corporate Finance, 22 (2013), 16–34.10.1016/j.jcorpfin.2013.03.004CrossRefGoogle Scholar
Kyle, A. S. “Continuous Auctions and Insider Trading.” Econometrica, 53 (1985), 1315–1335.CrossRefGoogle Scholar
Levit, D.; Malenko, N.; and Maug, E.. “The Voting Premium.” Working Paper, available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3783944 (2021).CrossRefGoogle Scholar
Levit, D.; Malenko, N.; and Maug, E.. “Trading and Shareholder Voting.” Unpublished Working Paper, SSRN (2022).Google Scholar
Li, K.; Liu, T.; and Wu, J.. “Vote Avoidance and Shareholder Voting in Mergers and Acquisitions.” Review of Financial Studies, 31 (2018), 3175–3211.CrossRefGoogle Scholar
Li, S. Z.; Maug, E. G.; and Schwartz-Ziv, M.. “When Shareholders Disagree: Trading After Shareholder Meetings.” Review of Financial Studies, 35 (2022), 1813–1867.CrossRefGoogle Scholar
Li, Y., and Yermack, D. L.. “Evasive Shareholder Meetings.” Journal of Corporate Finance, 38 (2016), 318–334.CrossRefGoogle Scholar
Manne, H. G. “The ‘Higher Criticism’ of the Modern Corporation.” Columbia Law Review, 62 (1962), 399–432.CrossRefGoogle Scholar
Yermack, D. L. “Shareholder Voting and Corporate Governance.” Annual Review of Financial Economics, 2 (2010), 103–125.CrossRefGoogle Scholar
Young, P. J.; Millar, J. A.; and Glezen, G. W.. “Trading Volume, Management Solicitation, and Shareholder Voting.” Journal of Financial Economics, 33 (1993), 57–71.CrossRefGoogle Scholar