2021 GCGC
CONFERENCE: Yale

11-12 June 2021

The Voting Premium

Speaker:

Nadya Malenko

Associate Professor of Finance, University of Michigan, Ross School of Business

Discussant:

Ernst-Ludwig von Thadden

Professor of Economics and Finance, and Rector, University of Mannheim

Abstract:

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.


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