Abstract
Most U.S. public companies have a single class of voting common shares: voting power is proportional to economic ownership. Linking votes to shares is often thought to be desirable, because, as residual claimants, shareholders have an incentive to exercise voting power well. The linkage also facilitates the market for corporate control. On the other hand, decoupling is efficient in some situations. Equity derivatives and other capital market developments now allow shareholders to readily decouple voting rights from economic ownership of shares, often without public disclosure. Hedge funds are prominent users of decoupling. Sometimes they hold more votes than economic ownership (a situation we term “empty voting”). Sometimes they hold undisclosed economic ownership without votes, but often with the de facto ability to acquire votes if needed (a situation we term ‘‘hidden (morphable) ownership”). This Article analyzes empty voting and hidden (morphable) ownership, which we term the “new vote buying.” We offer a framework for unpacking its functional elements and assess its potential benefits and costs. Two companion legal articles (Hu, Henry T.C., and Bernard S. Black, 2006a. The New Vote Buying: Empty Voting and Hidden (Morphable) Ownership, Southern California Law Review 79, 811–908#, and Hu, Henry T.C., and Bernard S. Black, 2006b. Empty Voting and Hidden Ownership: Taxonomy, Implications and Reforms, Business Lawyer 61, 1011–1069.) provide more details on current disclosure rules and offer a disclosure reform proposal.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.