Empty voting and the efficiency of corporate governance

We model corporate voting outcomes when an informed trader, such as a hedge fund, can establish separate positions in a firmʹs shares and votes (empty voting). The positions are separated by borrowing shares on the record date, hedging economic exposure, or trading between record and voting dates. We find that the traderʹs presence can improve efficiency overall despite the fact that it sometimes ends up selling to a net short position and then voting to decrease firm value. An efficiency improvement is likely if other shareholders’ votes are not highly correlated with the correct decision or if it is relatively expensive to separate votes from shares on the record date. On the other hand, empty voting will tend to decrease efficiency if it is relatively inexpensive to separate votes from shares and other shareholders are likely to vote the right way.