DP11933 Blockholder Voting

Author(s): Heski Bar-Isaac, Joel Shapiro
Publication Date: March 2017
Keyword(s): Blockholder, corporate governance, shareholder voting
JEL(s): D72, G34
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=11933

By introducing a shareholder with many votes (a blockholder) to a standard model of voting, we uncover several striking results. First, if a blockholder is unbiased, she may not vote with all of her shares. This is efficient, as it prevents her vote from drowning out the information provided by other votes. Second, if this blockholder can announce her vote before the vote takes place, other shareholders may ignore their information and vote with the blockholder to support her superior information. Third, if the blockholder is biased, some shareholders will try to counter the blockholder's vote. The results are robust to allowing for information acquisition and trade. This suggests that regulations discouraging or prohibiting abstention, strategic behavior, and/or coordination may reduce efficiency.