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American Law and Economics Review Advance Access published online on October 23, 2009
American Law and Economics Review, doi:10.1093/aler/ahp015
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© The Author 2009. Published by Oxford University Press on behalf of the American Law and Economics Association. All rights reserved. For permissions, please e-mail: journals.permissions@oxfordjournals.org

Corporate Voting versus Market Price Setting

Yair Listokin

Yale Law School

Send correspondence to: Yair Listokin, Associate Professor of Law, Yale Law School, PO Box 208215, New Haven, CT 06520-8215 USA; Telephone: 203-436-2567; Fax: 203-432-4570; E-mail: yair.listokin{at}yale.edu

JEL Classification: D71, G14, G34, K22, P5


  Abstract

This paper examines the relation between two means of corporate information aggregation–-corporate voting and stock market pricing. If the median voter and the price-setting shareholder share similar information, then close proxy contest outcomes should not have systematic effects on stock prices. The paper shows, however, that close dissident victories cause positive movements in stock prices, while close management victories lead to negative price effects. The median voter values management control more than the price-setting shareholder. Voting and market pricing aggregate information in very different ways, with important implications for the role of voting and market pricing in corporate law.

I thank Lucian Bebchuk, Alan Gerber, Henry Hansmann, Daniel Ho, Stephanie Listokin, Ian Masias, Roberta Romano, Benjamin Sachs, Alan Schwartz, two anonymous referees, the editor (John Donohue), and seminar participants at Stanford Law School, University of California Berkeley Law School, University of Pennsylvania Law School, the University of Virginia Law School, and Northwestern Law School for extremely helpful comments and discussions and the Oscar M. Ruebhausen Fund for financial support. All errors are my own.


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