Do Voting Rights Affect Institutional Investment Decisions? Evidence from Dual-Class Firms
58 Pages Posted: 8 Dec 2006 Last revised: 1 Nov 2023
Date Written: November 2007
Abstract
We examine whether, and to what extent, shareholder voting rights affect institutional investment decisions. Our analysis compares institutional investment in dual-class firms, where multiple share classes carrying differential voting rights allow insiders to control the firm and leave outside investors with little or no control rights, to that in single-class firms, where each share carries one vote. We find that institutional ownership in dual-class firms is significantly lower than it is in single-class firms after controlling for other determinants of institutional investment. Although institutions of all types hold less of the shares of dual-class firms, this avoidance is more pronounced for long-term investors with strong fiduciary responsibilities than for short-term investors with weak fiduciary duties. Following the unification of dual-class shares into a single-class, institutional investors increase their shareholdings in the unifying firm. Overall, our results suggest that voting rights are an important determinant of institutional investment decisions.
Keywords: corporate governance, dual-class firms, institutional investors, ownership structure, unification, voting rights
JEL Classification: G11, G32
Suggested Citation: Suggested Citation
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