Proxy Contests: A Re-examination of the Value of the Vote Hypothesis

This paper presents new evidence on the market value of voting rights during a proxy contest. It tests the hypothesis that the positive announcement period abnormal returns associated with proxy contests may in part be attributed to the incremental value of the voting right. Investigation of board-seat and issue contests reveals that the announcement period positive returns and the ex-record day negative returns are higher for board-seat than for issue contests. For board-seat contests, the announcement period price increase and the ex-record day price decrease are larger under cumulative voting than under non- cumulative voting. The evidence is consistent with the notion that the increased demand for voting shares during a proxy contest enhances the voting premium and that the effect is proportional to the incremental voting power. The ex-record day evidence reinforces this argument.