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Voting and Trading on Public Information

Markus Parlasca^1,2; Paul Voss³

¹ WU Vienna University of Economics and Business and Vienna Graduate School of Finance , , · ² Leibniz Institute for Financial Research SAFE, Germany, and Finance Theory Group , , · ³ HEC Paris, France, and Finance Theory Group

This paper studies how public information, such as proxy advice, affects shareholder voting and, thus, corporate decision-making. We find that while public information improves the voting decisions of uninformed shareholders, it also induces privately informed shareholders to exit rather than to exercise their voice (vote). As a result, public information impairs information aggregation by voting but improves information aggregation by trading. Overall, public information can undermine corporate decision-making. Furthermore, slightly more precise public information can lead to a discontinuous reduction in firm value. Our results give rise to new empirical predictions and have implications for regulation.

DOI

10.1093/rfs/hhag035

Language

en

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