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Unbundling the Voting Rights and Profit Claims of Common Shares

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  • Blair, Douglas H
  • Golbe, Devra L
  • Gerard, James M

Abstract

The authors analyze a model of a hostile takeover attempt in which shareholders are free to sell common-share voting rights, as well as the shares themselves. Without taxation, only welfare-improving takeovers succeed. Allowing vote sales has no effect on the success of attempted takeovers or the profits of incumbent management or raiders. When taxes are levied, however, an inefficiently small number of value-increasing takeovers succeed if vote sales are prohibited. Allowing vote sales facilitates such takeovers and raises welfare. With taxation, incumbents would never prefer to defend against takeovers by purchasing votes, but raiders might well prefer this method. Copyright 1989 by University of Chicago Press.

Suggested Citation

  • Blair, Douglas H & Golbe, Devra L & Gerard, James M, 1989. "Unbundling the Voting Rights and Profit Claims of Common Shares," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 420-443, April.
    • Handle: RePEc:ucp:jpolec:v:97:y:1989:i:2:p:420-43
    DOI: 10.1086/261610
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    Citations

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    Cited by:

    1. Susan Christoffersen & Christopher C. Geczy & David K. Musto & Adam V. Reed, 2004. "How and Why do Investors Trade Votes, and What Does it Mean?," CIRANO Working Papers 2004s-23, CIRANO.
    2. Frank Daumann & Alfred Wassermann, 2009. "Does trading votes in national elections change election outcomes?," Public Choice, Springer, vol. 139(3), pages 429-441, June.
    3. Brav, Alon & Mathews, Richmond D., 2011. "Empty voting and the efficiency of corporate governance," Journal of Financial Economics, Elsevier, vol. 99(2), pages 289-307, February.
    4. Teall, John L., 1997. "The one-share-one-vote-rule and managerial compensation," Review of Financial Economics, Elsevier, vol. 6(2), pages 211-223.
    5. Jean-Jacques Laffont & Jean Tirole, 1988. "Repeated Auctions of Incentive Contracts, Investment, and Bidding Parity with an Application to Takeovers," RAND Journal of Economics, The RAND Corporation, vol. 19(4), pages 516-537, Winter.
    6. Neeman, Zvika & Orosel, Gerhard O., 2006. "On the efficiency of vote buying when voters have common interests," International Review of Law and Economics, Elsevier, vol. 26(4), pages 536-556, December.
    7. John L. Teall, 1997. "The one‐share‐one‐vote‐rule and managerial compensation," Review of Financial Economics, John Wiley & Sons, vol. 6(2), pages 211-223.
    8. Meirowitz, Adam & Pi, Shaoting, 2022. "Voting and trading: The shareholder’s dilemma," Journal of Financial Economics, Elsevier, vol. 146(3), pages 1073-1096.
    9. Mike Burkart & Samuel Lee, 2008. "One Share - One Vote: the Theory," Review of Finance, European Finance Association, vol. 12(1), pages 1-49.
    10. Nicodano, Giovanna, 1998. "Corporate groups, dual-class shares and the value of voting rights," Journal of Banking & Finance, Elsevier, vol. 22(9), pages 1117-1137, September.
    11. Ingolf Dittmann & Niels Ulbricht, 2008. "Timing and Wealth Effects of German Dual Class Stock Unifications," European Financial Management, European Financial Management Association, vol. 14(1), pages 163-196, January.
    12. Hu, Henry T.C. & Black, Bernard, 2007. "Hedge funds, insiders, and the decoupling of economic and voting ownership: Empty voting and hidden (morphable) ownership," Journal of Corporate Finance, Elsevier, vol. 13(2-3), pages 343-367, June.

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