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Corporate Vote Buying: The New Separation of Ownership and Control

In their role as owners of a corporation, shareholders are assumed to use their voting rights in a manner that maximizes the value of the firm. However, this assertion is called into question by the relatively new phenomenon of corporate vote buying. A series of recent academic articles have documented an active market for corporate votes (see e.g. Hu, Black, 2006a, 2008, or Christoffersen et al., 2007). In general, the literature tends to treat this new separation of ownership and control with skepticism. This paper criticizes existing contributions for overstating possible negative consequences. In particular, the literature fails to distinguish between reciprocal and non-reciprocal vote buying and ignores price reactions whenever an activist wants to establish a profit source that is not marginal in size. The consideration of indexation, endogenous incentive effects, expressive voting and the motivation crowding effect suggests that some reservations to corporate vote buying are nevertheless appropriate.