Why are Shareholders Not Paid to Give Up Their Voting Privileges? Unique Evidence from Italy
University of Bologna - Department of Management
University of Alberta - Department of Finance and Statistical Analysis
P. Raghavendra Rau
University of Cambridge; UC Berkeley - Haas School of Business
August 31, 2011
Journal of Corporate Finance, 17(5), 1619-1635, 2011
ECGI - Finance Working Paper No. 180/2007
Dual-class share unifications have typically been argued to be beneficial for voting shareholders. In the unification, voting shareholders are usually compensated for the loss of their superior voting privilege. However, no covenants exist that make this compensation mandatory for voting shareholders. In this paper, we examine a subset of dual class share unifications from Italy where, in the main, voting shareholders are not offered any compensation for the loss of their superior voting rights. We present a simple model describing the conditions under which the controlling voting shareholder will choose not to offer compensation to minority voting shareholders as part of a share unification. Our empirical results support the model predictions.
Number of Pages in PDF File: 45
Keywords: dual class shares, unification, corporate governance, expropriation, insider trading, equity structure
JEL Classification: G32, G34Accepted Paper Series
Date posted: September 3, 2011 ; Last revised: January 27, 2013
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