Changing Corporate Governance Norms: Evidence from the Dismissal of Dual Class Shares in the U.K.
Tilburg University - Center and Faculty of Economics and Business Administration; Tilburg University - European Banking Center
Stockholm School of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swedish House of Finance
April 18, 2016
ECGI - Finance Working Paper No. 375
In the U.K., between 1955 and 1970, dual class shares went from being popular to be nearly dismissed without any regulatory intervention. We show that market-based measures of investor demand for one-share-one-vote are negatively related to the use of dual class shares. Investor demand is related to the tone of a debate on the desirability of dual class shares in which no new material information was revealed. Following periods of high demand for one-share-one-vote, voting shares exhibit lower returns than limited-voting shares suggesting that the latter were undervalued. We conclude that non-fundamental investor demand may affect corporate governance.
Number of Pages in PDF File: 51
Keywords: Corporate Governance, Dual Class Shares, Investor Demand, Public Debate
JEL Classification: G3, G1, N24
Date posted: September 1, 2012 ; Last revised: April 18, 2016
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