The Voting Premium

This paper develops a unified theory of blockholder governance and the voting premium. It explains how and why a voting premium emerges in the absence of takeovers and controlling shareholders. The model features a minority blockholder and dispersed shareholders who trade shares in a competitive market. Those who own shares after trading vote on a proposal at a shareholder meeting. A voting premium can emerge in equilibrium from the blockholderís desire to ináuence who exercises control, rather than from exercising control himself. We show that the voting premium is unrelated to measures of voting power and that empirical measures of the voting premium generally do not reáect the economic value of voting rights. Consistent with recent empirical studies, the model can generate a negligible voting premium even when the allocation of voting rights is important. The model can also explain a negative voting premium, which has been documented in several studies. It arises because of free-riding by dispersed shareholders on the blockholderís trades. Finally, the model has novel implications for the liquidity of voting vs. non-voting shares, the relationship between the voting premium and the price of a vote, competition for control among blockholders, the block premium, and corporate ináuence more generally.