DP15718 The voting premium

Author(s): Doron Levit, Nadya Malenko, Ernst Maug
Publication Date: January 2021
Date Revised: February 2021
Keyword(s): blockholders, corporate governance, Ownership Structure, Shareholder rights, Trading, voting, voting premium
JEL(s): D74, D82, D83, G34, K22
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15718

This paper develops a theory of blockholder governance and the voting premium. A blockholder and dispersed shareholders first trade in a competitive market and then vote at a shareholder meeting. A positive voting premium emerges only if the blockholder is not the median voter, since he is then willing to pay a higher price to move the median voter in his preferred direction. Hence, the voting premium does not emerge from exercising control, but from influencing who exercises control. Empirical measures of the voting premium generally do not reflect the economic value of voting rights to the blockholder, and the voting premium is unrelated to measures of voting power, such as the probability of being pivotal. A negative voting premium can emerge in situations when dispersed shareholders could free-ride on the blockholder's trades.