DP4192 Do Shareholders vote Strategically? Evidence on the Advisory Role of Annual General Meetings

Author(s): Ernst Maug, Kristian Rydqvist
Publication Date: January 2004
Keyword(s): information aggregation, shareholder meeting, sincere voting, strategic voting, super majority
JEL(s): D44, G10
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=4192

We investigate if the proxy voting process transmits valuable information from shareholders to management. A simple strategic voting model is developed and tested in a large sample of management proposals. The evidence suggests that voting is strategic in the sense that shareholders take into account the information of the other shareholders when making their voting decisions. The structural estimation suggests that strategic voting saves up to 30% of the value at stake in a proposal compared to naive voting strategies, especially for voting on governance proposals. The data also suggest that super majority requirements are never optimal. We conclude that shareholder meetings have an advisory function in addition to the disciplining role typically emphasized in the literature.