Finance Seminar（2016-07）

Topic:A Theory of Vote Trading and Information Aggregation

Speaker:Lucy White, Harvard Business School and CEPR

Time:Wednesday, 30 March, 10:00-11:30

Place:Room 217, Guanghua Building 2

Abstract:

The ability to buy “empty votes” by using derivative contracts to separate shares’ voting and cash flow rights is a cause of policy concern. We construct a formal model of a market for empty votes where informed and uninformed (and potentially biased) shareholders endogenously choose to demand or supply. There always exists an equilibrium where only informed shareholders demand votes, since uninformed shareholders’ willingness to pay for votes is endogenously reduced by two effects: the “swing bidders’ curse” and the “crowding out effect”. Votes are transferred from uninformed to informed actors, thus trading improves welfare by better aggregating information. We provide conditions under which trading can achieve full information aggregation. In the presence of frictions such as forced voting or contrarians (short sellers) the endogeneity of vote supply can limit the damage they can cause: if they are too prevalent then uninformed and unbiased shareholders simply refrain from supplying.

Introduction:

Lucy White is an Associate Professor of Business Administration at Harvard Business School. she joined the finance group at Harvard Business School in 2002. She has taught the two required finance courses in the first year of the M.B.A. programme, and currently teaches the optional second-year advanced corporate finance course “Corporate Financial Management.” Professor White received her B.A. in Philosophy, Politics and Economics, and her M.Phil. in Economics, from the University of Oxford; and a D.E.E.Q.A. (European Diploma in Economics) from the University of Toulouse. She gained a doctorate in economics from the University of Oxford in 1999 for her research on Strategic Behaviour under Uncertainty; and a doctorate in finance from the University of Toulouse in 2001 for her Essais en Finance d'Entreprise.

Professor White's research interests are wide-ranging within micro-economic theory, including auctions, bargaining, industrial organisation, banking and corporate finance. Her most recent work focuses on the impact of deposit insurance and capital requirements on risk-taking by banks, especially in light of the new Basel regulations. Her work has been published in top finance and economics journals, such as the Journal of Finance, Econometrica, American Economic Review and the RAND Journal of Economics. Professor White is a Research Fellow of the Centre for Economic Policy Research. She has also consulted part-time for NERA on anti-trust matters.

//www.hbs.edu/faculty/Pages/profile.aspx?facId=140857

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