Communication Costs, Information Acquisition, and Voting Decisions in Proxy Contests

What is it about?

This paper synthesizes some recent progress in the theories of corporate control and political lobbying to model the proxy campaign as a political campaign. The model yields a number of testable implications, only some of which have been examined in the literature. For example, if the loss from voting for a "bad" dissident exceeds the gain from voting for a "good" dissident, the model predicts that as communication costs fall, the number of proxy fights increases, announcement day returns decrease, and the fraction of dissident wins first increases and then decreases.

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Why is it important?

This is the first paper that shows that proxy reform is double-edged. Though reform makes it easier to launch proxy fights, it also makes it easier for bad quality to launch challenges. The quality of the pool first increases and then decreases as barriers fall.

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