Reevaluating Shareholder Voting Rights in M&A Transactions

Shareholder voting plays a central role in corporate governance. Yet, for many public company acquisition transactions only the target firm's shareholders can exercise voting rights under corporate law. The lack of voting rights for shareholders of the acquiring (or bidder) firm is potentially problematic given anecdotal and empirical evidence that a large percentage of public company acquisitions involve negative returns for bidder shareholders. Recent research shows that compulsory shareholder voting reduces the problem of bidder overpayment. Despite this evidence, the response in corporate law has been muted. This article reviews the empirical and legal literature on the role of bidder shareholders in acquisitions and suggests ways that compulsory voting can be implemented in large public company acquisitions to reduce the overpayment problem