How Effective is Proxy Voting? Information Aggregation and Conflict Resolution in Corporate Voting Contests

50 Pages Posted: 6 Apr 1999

See all articles by Ernst G. Maug

Ernst G. Maug

University of Mannheim Business School; European Corporate Governance Institute (ECGI)

Date Written: March 25, 1999


This paper analyzes the efficiency of shareholder voting as a mechanism to resolve differences of opinion and conflicts of interest among shareholders. Passing a proxy proposal or electing a dissident slate of directors requires the votes of a number of minority blockholders. If they vote strategically, they behave like one representative shareholder who solves a real option problem and is constrained to observe only a subset of all available information. The decision is improved if shareholders are allowed to communicate freely, but this does not overcome the incentive to misrepresent information in the presence of conflicts of interest. Then trading in a public market improves the allocation if two conditions are met: the voting process is not controlled by insiders and the market aggregates information accurately. Better information aggregation may lead to inferior results in insider controlled firms, and noisy information aggregation in the stock market may be worse than none at all. Announcement returns are better understood as option premia rather than wealth effects since positive announcement returns are consistent with proposals that are expected to reduce shareholder value. Empirical implications link the effectiveness of voting to trading volume and stock price volatility. The direction of stock price changes is not consistently related to the voting outcome or the effectiveness of shareholder voting.

JEL Classification: G30, G34, D72

Suggested Citation

Maug, Ernst G., How Effective is Proxy Voting? Information Aggregation and Conflict Resolution in Corporate Voting Contests (March 25, 1999). Available at SSRN: or

Ernst G. Maug (Contact Author)

University of Mannheim Business School ( email )

L9, 1-2
Mannheim, 68131
+49 621 181-1952 (Phone)


European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

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