Overview
This paper examines proxy contests and the value of shareholder voting rights, measured using a voting premium estimated from option prices. Using a sample of 1,075 proxy contests for board seats at U.S. publicly listed firms from 1994 to 2020, we find that the voting premium helps predict contest outcomes. Higher voting premiums around campaign announcements are associated with a greater likelihood that contests are settled or proceed to a vote, and a lower likelihood of withdrawal. In addition, the probability of dissidents being elected when contests go to a vote increases with the voting premium around the record date.
Project researchers
Oğuzhan Karakaş
Cambridge Judge Business School – Finance Subject Group; European Corporate Governance Institute (ECGI)
Scott Hirst
Boston University School of law
Ting Yu
Cambridge Judge Business School
Research summary: The Market Value of Shareholder Votes in Proxy Contests
This paper studies how much shareholder votes are worth during proxy contests for board seats, and whether market prices can help predict how these contests will play out. The authors use an options-based method to measure the “voting premium”, that is, the extra value in a share price that reflects voting rights on top of its cash flow rights.
The sample includes 1,074 proxy contests at US-listed firms from 1994–2020. About 19 % of contests are withdrawn by dissidents, 42 % are settled, and 39 % go to a shareholder vote. Consistent with earlier research, the authors find positive and significant abnormal share price performance around proxy contest announcements.
Using the method of Kalay, Karakaş, and Pant (2014), the paper constructs a synthetic, non-voting stock price from options, then compares it to the actual stock price to estimate the voting premium. For 359 contests with options data, the voting premium rises around contest announcements, especially for contests that are settled or go to a vote, and less so for those that are later withdrawn. The voting premium also increases around the ex-vote date and falls after the campaign ends, mirroring share price movements. These findings support the “value of the vote” hypothesis.
The authors also show that the voting premium contains information about contest outcomes. It helps predict whether a contest will be withdrawn and, for contests that go to a vote, how many board seats dissidents will win. This predictive power goes beyond how “close” the contest is. After contests, especially when dissidents gain seats, firms are more likely to experience forced CEO turnover, indicating that proxy contests are an effective governance tool.
Overall, the paper shows that voting rights themselves have measurable value during proxy contests and that this value helps explain both stock price reactions and contest outcomes.