Abstract
We explore how allowing votes to be traded separately of shares may affect the efficiency of corporate control contests. Our basic set-up and the nature of the questions continue the work of, and Blair, Golbe and Gerard (1989). We consider three cases with respect to the allowable price offers (for shares and for votes when they can be traded separately): unrestricted price offers, quantity-restricted price offers, and price offers contingent on winning. Our main results are characterizations of the equilibria and of the circumstances under which vote buying is harmful. We show that allowing votes to be traded separately of shares results in inefficiencies in all the cases we study. Similarly allowing quantity-restricted offers is also harmful, but allowing conditional offers is not in itself detrimental to efficiency. The paper also makes a methodological contribution to the analysis of takeover games with atomless shareholders. It provides a way of dealing with asymmetric equilibria that must be dealt with for a complete analysis and it proves existence of an equilibrium.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 196-226 |
| Number of pages | 31 |
| Journal | Review of Economic Studies |
| Volume | 79 |
| Issue number | 1 |
| DOIs | |
| State | Published - Jan 1 2012 |
Funding
Acknowledgment. Dekel gratefully acknowledges support from the Sapir center of Tel Aviv University and the NSF under grant SES-0820333. Wolinsky gratefully acknowledges support from the NSF under grant SES-1123595. We are grateful to four referees and the coeditor, participants at PIERS 2008, and Bart Lipman for their helpful comments and to Toomas Hinnosaar and Au Pak Hong for their helpful research assistance.
Keywords
- Corporate control contest
- Vote-buying
ASJC Scopus subject areas
- Economics and Econometrics
