Catering Incentives and Corporate Governance: 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
July 15, 2015
ECGI - Finance Working Paper No. 375
In the U.K., between 1955 and 1970, dual class shares went from being very popular to be nearly dismissed, without any regulatory interventions. We show that market-based measures of investor demand for one-share-one-vote, constructed following Baker and Wurgler (2004a), are negatively related to the use of dual class share structures. We provide evidence showing that investor demand is related to the tone and the intensity of a debate on dual class shares in which no new material information was revealed and that voting shares exhibit lower returns than limited-voting shares following periods for relatively high demand for one-share-one-vote. Our results suggest that non-fundamental investor demand may have limited firms’ ability to use dual class shares and have broader implications for corporate governance.
Number of Pages in PDF File: 55
Keywords: Corporate Governance, Dual Class Shares, Public Debate
JEL Classification: G02, G1, G3
Date posted: September 1, 2012 ; Last revised: July 16, 2015
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