Journal Article

Buying Shares and/or Votes for Corporate Control

Eddie Dekel and Asher Wolinsky

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 79, issue 1, pages 196-226
Published in print January 2012 | ISSN: 0034-6527
Published online November 2011 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1093/restud/rdr028
Buying Shares and/or Votes for Corporate Control

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  • Game Theory and Bargaining Theory
  • Mergers and Acquisitions
  • Analysis of Collective Decision-making

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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 Grossman and Hart (1980), Harris and Raviv (1988), 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.

Keywords: Vote-buying; Corporate control contest; C72; D72; G34

Journal Article.  16933 words. 

Subjects: Game Theory and Bargaining Theory ; Mergers and Acquisitions ; Analysis of Collective Decision-making

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