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Review of Finance Advance Access originally published online on November 28, 2008
Review of Finance 2009 13(1):47-79; doi:10.1093/rof/rfn026
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© The Author 2008. Published by Oxford University Press on behalf of the European Finance Association. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org

Do Shareholders Vote Strategically? Voting Behavior, Proposal Screening, and Majority Rules*

Ernst Maug1 and Kristian Rydqvist2

1 University of Mannheim
2 Binghamton University

We analyze how shareholders screen management proposals at annual general meetings. First, we use a simple model of strategic voting to develop a theoretical benchmark of effective information aggregation through voting. Then, we derive testable implications and provide structural estimates of the model parameters. The main conclusions are that shareholders vote strategically and that proposal screening increases value. Shareholders largely neutralize the lock-in effect of supermajority rules, thereby preventing the incorrect rejection of proposals.

Key Words: D72 • G34

* We are grateful to Mohan Gopalan, Suresh Paul, Joshua Spizman, and Xue Wang for research assistance. We would also like to thank Lucian Bebchuk, Stuart Gillan, Roberta Romano, and Richard Sias for institutional information, and Francois Degeorge, Murali Jagannathan, Matti Keloharju, Srinivasan Krishnamurthy, Gregor Matvos, Allesandro Sbuelz, Christoph Schneider, Steven Schwartz, Joshua Spizman, Oren Sussman, Steven Todd, Charlotte Østergaard, Bilge Yilmaz, and seminar participants at Amsterdam, Binghamton, Buffalo, CalTech, CEPR-SITE Workshop 2004 (Stockholm), Cornell, ECARE, European Finance Association 2004, Financial Intermediation Research Society 2004, Helsinki School of Economics, Humboldt University of Berlin, Lugano, Norwegian School of Management, Oslo Conference on Corporate Governance, Rutgers, People and Money 2004 (DePaul), Swedish Institute for Financial Research, Swiss Banking Institute, Vienna, and Western Finance Association 2007 for their comments on earlier versions of this paper.


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